COMEX Spot Price VS. Physical Gold Price; Still Puzzling
I have spent some time on the whole disconnect between the COMEX spot price for gold and the price for physical gold. On a day when Ron Paul was out in force asking Ben Bernanke about a gold standard, there was this headline in the NY Post:
GOVERNMENTS CAN'T HANDLE GLOBAL RUN ON GOLD COINS
With fears of future inflation rising and concern about the value of paper currency and government-debt increasing with each new recovery plan announced in Washington and in foreign capitals, the desire to hold gold grows.
That part makes perfect sense. But there's another more puzzling aspect to the recent gold rush.
Even as the demand for gold coins such as the Canadian Maple Leaf or the Krugerrand of South Africa has grown, the market price of the precious metal itself is off its highs.
In early October, the price of an ounce of gold on the spot market was about $930 an ounce. With the commodities bubble bursting in recent months, gold declined into the upper $600 range. Spot gold closed yesterday at $739.90, down $2.60.
Bill Murphy, chairman of the Gold Anti-Trust Action Committee, says the price of spot gold is even more perplexing given the demand for coins and the fact that central banks in Europe have stopped selling gold into the open market.
"Gold should be moving up," Murphy says. "How could there be such a dichotomy between the historic high premium for coins all over the world and the low COMEX price?"
Another mainstream media article. I am starting to think this trade seems too easy, too obvious to happen. December cannot come fast enough for this blogger, but will anything happen? Mish has written in his comments section that he feels there will be no COMEX blow up and all this stuff is absurd. Hate to argue with that guy, but I am still on this train!
Treasury Throws in the Towel
You would not know it by the subdued mood of the day, but this Tuesday saw a seismic move in the long running drama known as our financial crisis.
Today Hank Paulson stated he would not request the other half of the TARP funds, another 350 Billion, and would leave it to the next guy to deal with it. Ben Bernake also chimed in with his take on the situation (loose paraphrase):
"The FED and Treasury have performed so great the real crisis has been averted, so please thank us."
It seems to me that our two commanders of the economic ship have thrown in the towel. Now before you get too excited that money will not be pouring out across the spectrum of the business world I have to offer a warning;
While Bernanke and Paulson did a magnificent job of wasting money and every one's time the whole deal now will be decided by the US Congress.
I would suggest watching some youtube clips of most members of the Senate or House asking economic questions. They are utterly clueless when it comes to these things. How else did Paulson get that original TARP plan passed other than the Congress abdicating any role or responsibility in the matter. They gave up their power because they knew they have no idea what to do. Now they will have no choice.
To get an idea on what i am talking about, take this little snippet from an article about the auto bailout debate today:
"Banking Committee Chairman Christopher Dodd, D-Conn., told the leaders of GM, Chrysler and Ford Motor Co. that the industry was "seeking treatments for wounds that I believe to a large extent were self-inflicted."
Still, he said, "At a time like this, when our economic future is so tenuous, we must do all we can to ensure stability."
So Mr. Dodd knows full well the real issue with the big three, yet he is ready and able to vote yes on a money throw away anyway. OK.
While I am pleased the Treasury has given up the ghost on more cash plowing before years end, I am unsettled thinking about what the new Congress may do come the new year. At least the Treasury and FED guys are schooled in things economic, the Congress only knows how to burn cash for votes. Now they will be at the helm of the USS Bailout, a new class of aircraft super carrier that can rain dollar bills down on any enemy anywhere in the world! It even has it's own helicopters to aid in cash dispersion!
The central theme that is being ignored is that the wild consumption rates of the last 5-7 years (depending on how you look at it) are not coming back. If your business is dependent on that level of consumption, you are screwed buddy. The government on all levels seems determined to try and get consumption back to bubble levels. Call it "Consumption Targeting" instead of the old "inflation targeting".
It seems the US economy can only survive during bubble booms. Any slack period, any time everyone is not spending all their money and then some poses a "systemic risk" and financial implosion. One has to consider WHEN, not IF, a system like this will break. I would like it very much if we could get to this core debate soon. Nothing can be solved unless the thinking turns to this line of thought.
Have a good night.