Plunging Gold and SIlver Prices and Supply Delays on Their Way

What a week to be away!

It has been a crazy one.  I’ve been out of the country and while in transit the site was actually down for the day.  Not good – so sorry if you tried to get on there on Tuesday and had no luck and thanks to those readers who alerted us to the fact.  All rectified now –we’re actually also working on a facelift of the site at the moment.  So look out for that in the future.

Anyway enough house keeping – it certainly was a tumultuous week to be away!

Plunging prices

I nearly choked on my papaya when I saw the price movements last week.  Being somewhat “incommunicado” I wasn’t as plugged in to the goings on as usual.  And while a decent fall was not completely unexpected (see this article from a couple weeks ago of ours) it was still a surprise to see such a massive plummeting of the price in only 2 days.

There’s many theories on why this occurred but we won’t bother to go into them as it’s now history anyway.

Were you prepared?

The more important thing to consider was whether you were prepared both psychologically and financially for it?

We’ve mentioned recently how gold could fall markedly and still be in the confines of a bull market and how it pays to be prepared for this mentally.  We also often talk about keeping some powder dry for the dips (or plunges!) when they come.  And the old chestnut of buying in tranches really strikes a chord in situations like this.  We hate to say I told you so…!

While away I was reminded of something Mike Maloney wrote in his book “Guide to investing in gold and silver”.

He prognosticated a few years back that we would see  “First the threat of deflation, followed by a helicopter drop, followed by big inflation, followed by real deflation, and then followed by hyperinflation.”

Deflation here?

So far it seems we’ve had the threat of deflation (ala 2008), we’ve had the money printing of TARP, QE 1 and 2, we’ve had some big inflation again in various commodities including gold and silver, so are we now experiencing the initial throes of real deflation?

2008 also saw massive buying of precious metals even in the face of falling prices.  It also saw large margins above spot price globally for physical gold and silver, where for example even though the price of silver may have been as low as US $9 or $10 you couldn’t actually buy silver for much less than about $13.

It also saw lengthy delays in delivery of gold and silver due to shortages of supply and production limitations of refiners and mints.

Supply delays on their way?

It could be that we are close to experiencing this too.  One of our suppliers of silver bars is currently back ordered until the New Year!  Their premium above spot for orders of 5kgs or more is only about 6% which is a great price.  But they have warned this may rise soon as they are looking for other suppliers and will likely have to pay more for it themselves.  Another silver supplier is only 6-10 working days however a bit more expensive.  Although they do buy it back at around 4% whereas the cheaper supplier buys buy at around 5-6% below spot price.

So we could see 2008 repeat where the spot futures price is not an accurate reflection of the physical market and so suppliers aren’t willing to sell at the paper price.

Gold and silver on sale

Gold and silver are certainly on sale at the moment anyway.

Not since 2008 has silver in NZD been significantly under it’s 200 day moving average as it is now.

Silver in NZD 3 year chart to Sept 2011

Click to enlarge

And gold is again getting closer to it’s 200 day moving average too.

Chart of Gold in NZD  3 years to Sept 2011

Click to enlarge

Could both fall further – certainly – but we’d rather be buyers than sellers here.  And if 2008 repeats while the prices could be lower the premiums could be higher.  That could make the current prices look pretty good.

As usual that’s just our opinion and what do we know!

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