Thursday, August 21, 2008

American Eagle Coins Sold Out; One Trader Held 11% of all Oil Contracts?

Fascinating. Gold usually ramps ahead of Armageddon ;) Or massive paper printing i.e. the type when your 2 major mortgage institutions are about to be bailed out...
  • A buying spree in the popular American Eagle bullion coins appears to have depleted inventory of major North American coin dealers, contributing to supply fears and sharply higher gold prices on Thursday.
  • Coin dealers in the United States and Canada said buying of gold coins and other bullion products has soared since last week as gold prices tumbled to near a nine-month bottom.
  • Blanchard and Co., one of the largest U.S. retail dealers of rare coins and precious metals, said the American Eagle and American Buffalo one-ounce gold coins -- novel items among collectors and investors -- are currently sold out. "Nobody has the Eagles or the Buffalos right now. We bought 2,000 ounces late last week, and those were the last 2,000 ounces that we can find in the marketplace," said David Beahm, vice president of New Orleans-based Blancard. "If we don't have them, nobody has them," Beahm said.
  • According to a Thursday report by the Wall Street Journal, the U.S. Mint told dealers it was temporarily suspending all sales of the American Eagle coins due to depleted inventory and unprecedented demand.
  • Meanwhile, Canada-based dealer Kitco also said demand for gold bullion coins has increased significantly in recent days. Kitco's Senior Analyst Jon Nadler said American Eagles are still in stock even though delays in supply and shipping of all bullion products could be possible due to high demand.
I'm not a gold bug, but this is the type of stuff that has the conspiricy theorists up in arms ;) WSJ story here.
  • "Due to the unprecedented demand...our inventories have been depleted," the Mint -- part of the U.S. Treasury Department -- told its dealers Friday. "We are therefore temporarily suspending all sales of these coins."
  • The move shocked sellers and collectors of the coins, which are the most widely traded in the U.S. Suppliers became angry as they turned away customers. Theories about the decision's underlying cause ran rampant -- from investors in gold futures to Russia's invasion of Georgia.
  • "This whole thing started about the time the Ruskies made their move," a collector noted in an Internet chat room called "It may very well be that the USGovt is preparing for the real financial meltdown by hoarding all remaining gold flows." (one of probably 85,000 theories currently being bandied around by the gold bugs) :)
  • "The situation is strange and doesn't fit the 'normal' supply & demand economic model," the firm wrote to customers.
  • The Gold Anti-Trust Action Committee, an advocacy group, said the Mint's move proved financial institutions are colluding to set prices. "The suspension is overwhelming evidence...that the commodities exchanges are being part of a massive scheme of manipulation of the precious metals, currency and bond markets," the group wrote on its Web site.
As for oil, up $6, what happened to "demand destruction" pundits? Notice how they are silenced. It's not "demand destruction" it's all speculation and big money flowing in and out. Lookee here: One Trader Held 11% of all NYMEX Contracts.
  • A single energy conglomerate held 11 percent of all contracts on the New York Mercantile Exchange at one point last month, according to a published report Thursday, suggesting that speculators may have played a larger part in volatile oil markets than once thought. (ya think? "supply and demand" doesn't really cause natural gas usually to fall 40%+ in 30 days, or crude down 20% after being up 100% in 7 months)
  • The Commodity Futures Trading Commission made an unusual request last month for data from Vitol Group, a private Swiss energy company that regulators thought was helping industrial firms get the oil they needed, according to The Washington Post. (secrecy rules supreme in Switzerland financial accounts) :)
  • The commission discovered, however, that the Vitol would be better described as a speculator, trading oil contracts to turn profits rather than assisting companies that actually needed oil delivered for their operations.
  • By June 6, Vitol had amassed contracts equal to 57.7 million barrels of oil, about three times the amount the United States consumes daily. On that day, the price for a barrel of oil spiked $11 to settle at $138.54, per barrel, valuing Vitol's oil holding at nearly $8 billion. (wow)
  • Commission documents do not show how much Vitol had put down to acquire that many contracts. Nymex allows traders to acquire contracts by putting up margins, which can amount to a fraction of the actual worth. So-called "swap dealers" operate in oil markets by investing on behalf of hedge funds and wealthy individuals who have no plans to take delivery, or buy an actual contract for oil.
Since commodities can be controlled by a fraction of their underlying cost it is not like they had to actually have $8 billion. I believe it is something like 10% for commodities (but don't quote me) so if that figure is near accurate $800M can control $8 billion. Did I mention we live in an age of leverage (that is quickly being destroyed the past year?)

Again, we are just gnats on the big behinds of these real movers and shakers - hence trying to "explain" or "correspond" daily moves to anything specific is best left to TV pundits. When the big money is doing things behind the scenes we see it in the price - simple as that. Trying to assign a "reason" is just a fool's game - we never really know who is doing what as so many trillions are sloshing through the global financial system at lightning quick pace.

Now... about that gold story... hmm....

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