Gold and Silver: Physical or Paper
By Allen Rowe - Northern Nevada Coin ……….
With the recent declines of precious metals many are asking the question, “why?” In reality the answer could be attributed to many different factors and influences, but one that kind of stood out this week showed something very interesting. There is a definite contrast in today’s market. Paper and physical metals react very differently.
On Friday April 12th we saw gold tumble nearly five percent and silver closer to ten percent. With the trading markets closed for the weekend many had a chance to think about what they were going to do on Monday. Come Monday the 15th a record number of sell contracts hit the market and the metals tumbled even further. In the paper world everyone was selling.
The physical market was reacting much differently. From what we could see there were far more buyers in the market and very few sellers. Inventories of physical product dried up nearly instantly around the country. Gold and silver premiums have begun to increase in various segments of the market, and in many instances the product that one seeks is not even available for immediate delivery.
This contrast was clearest in the silver arena. With a nearly 30% drop in value we saw few sellers, and buyers lined up looking for more silver. Finding actual physical silver has become much more difficult. Many manufactures are not taking new orders as they are so far behind. Even the distributers for the American silver eagles are many weeks out for delivery and some are even past allocation and not selling more until the mint commits to release more.
Much of this dichotomy can be attributed to ETF funds in which a trader can control more shares of metals on long or short sales. Introduced in 2004 these ETF funds have changed the responsiveness in the metals markets. With contracts traders can leverage themselves to try to capitalize on trends without having to anything but push a few buttons to control their position.
Every once in a while these contracts will reach epic proportions and the balance of the market will get skewed. In 2011 we saw silver in an over committed situation and the price shot up to nearly $50 with funds trying to cover their positions. I liken it to investing in metals on credit. Now that these contracts can be controlled on margin it allows the market to spike and fall at over exaggerated rates. As time marches on these funds are being refined and the margins that investors are being able to control are shrinking, but as long as the ETFs can sell longs and shorts on margin there will be extra volatility in the market.
Many have taken an exodus from precious metals during this recent correction, but from what we can see most that headed for the door were those who had bought paper metals. Those who have been buying physical metal seem to look at these new prices as a great sale. Time will tell which is correct, but right now we are seeing two very distinct sides in the metals market.
About Allen Rowe, Owner
I have been interested in coins since I was about the age of ten, and the coin bug was always been in my blood. After graduating from the University of Nevada Reno, I decided to follow my heart. In 1993 I formed and incorporated Northern Nevada Coin and Bullion, DBA as Northern Nevada Coin. After all these years I still look forward to going to work and especially which new coins I will get to see that day. Having handled nearly every coin that had been minted in the United States and many great foreign rarities, experience has taught me to appreciate every aspect of collecting and dealing in coins.
Northern Nevada Coin specializes in all Carson City coins, all silver dollars, US gold coins from 1795-1933, rare or key date type coins, and high grade US coins. Coins we especially like to buy are Carson City coins, C and D mint gold, rare O and S mint issues in gold, high relief’s, territorial gold, and high grade gold in all denominations. We also want to buy all major silver dollar errors.
Our mission is to serve our community with integrity, but also to create a destination for all coin collectors. Being located next to the Carson City mint, we aim to make your rare coin experience the best it can be when you visit Northern Nevada Coin.