Thursday, April 18, 2013

The Law Of Unintended Consequences

Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.  -  Bernard M. Baruch

Something most unusual happened yesterday - in the aftermath of the one of the most brutal one-day price drops in gold that I've ever witnessed  -  a paper/futures driven sell-off, mind you - U.S. retail buyers bought 63,500 ozs of gold American eagles from the U.S. mint.  This is by far a one-day record.   This is nearly 2 tonnes of gold purchased in one day by retail buyers.  A staggering amount.  That's 20% of the amount the falsely-reported gold sale from the Cyprus Central Bank.   What's most stunning about this is that historically, gold/silver buyers have scattered like frightened deer when gold undergoes a big price drop.  But this time was different.

While the widely reported price drop in gold has made great media "shock and awe" headlines, quietly the nationwide coin dealer supply of 1 oz. silver eagles and maple leafs has been rapidly depleted.  Dealers two weeks ago were selling silver eagles for spot +$2.50 +/-.  Yesterday I spoke with a very large owner of silver  eagle mint boxes (500 ozs/box) who was offered (bid) spot +$3.75 by two large coin dealers for everything he owned.

In fact, if you can find dealers with silver eagles to offer, you'll pay spot + $7.50-8.50 plus shipping.  So, in fact, despite the big sell-off in the price silver - again, driven by the paper/futures Comex - the true price of 1 oz. of real, physical silver that gets delivered to your possession has not declined at all (large buyers might be able to find silver eagles in quantity at more like spot +$4.50-5.00). 

If you see offers from your bank or insurance company-employed financial advisor to invest in an account that has gold/silver in it, run the other way.  ABN/Amro - the large Dutch bank - recently defaulted on investors who invested in a gold "account" and who wanted delivery of that gold:   LINK  If you had invested in that account and called to have the account liquidated and the gold sent to you, you got a letter back with a check in it.  This is exactly what gold market professionals have been warning about for years.  Coming soon to a fractional, paper precious metals account near you.

And don't think that can't happen in this country - like many Americans are delusionally wont to believe.  But it already has.  Morgan Stanley settled a big lawsuit several years ago because it defaulted on a silver investment account product.  When enough investors went to redeem their account and have the silver delivered, Morgan Stanley didn't have the silver.  The account was a Ponzi scheme:

The lawsuit, filed in August 2005, alleged that Morgan Stanley had told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley was actually making either no investment specifically on behalf of those clients or making an entirely different investment of lesser value and security, according to the complaint.  LINK

The unintended consequence of all this banking system and corporate fraud that is going unprosecuted by the Obama Administration - contrary to what he promised to do in 2008 when he was campaigning - is that a larger cross-section of the American public are starting to catch on to the game being played by the banking and political elite.  Yesterday's gold sales by the mint is proof.

A paper currency that has no wealth-backing in the form of real, substantiated economic growth - or stored wealth created in the form of gold and silver (see Bernard Baruch's quote above) - is illegitimate.  Any Government that issues and prints such a currency is illegitimate.  The U.S. Government is illegitimate and the massive and growing amount of unpayable Treasury debt and unpayable future liabilities is the proof.

That more Americans are understanding the necessity of converting illegitimate paper dollars into physical gold and silver - especially when given the gift of a big price correction - is the unintended consequence of the past week's attempt to discredit the legitimacy of gold and silver by the banking/political elite.