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A Disconnect – Spot ‘Price’ vs Spot ‘Value’ !

June 27, 2013

Recently, I purchased some one ounce silver coins at the premium price of $2.00 over spot. This premium has now changed for many coins which are being sold in the retail markets. First Federal Coin, Burnsville, Mn. is marketing a one ounce silver coin called the Panda for $79.95 plus shipping. This comes to approximately $85 for a one ounce silver coin with the image of three pandas on the face. Why would First Federal offer these one ounce coins for a price of some $65+ over the current spot price? Website:  http://www.firstfederalcoin.com/. Spot silver today was $18.56. Doesn’t  this represent a huge disconnect between ‘price’ and ‘value’? Could it be that many buyers/sellers now view ‘Spot Value’ as more relevant than ‘Spot Price’? Why do we need a new reference point for setting the Spot Price of silver and also gold? This message needs to get to the LBMA and COMEX committee’s!

Notice the huge fluctuations in the spot silver price (on select days). Why this change and what does this suggest? Are our markets manipulated via computer trading? Who and Why? Few seem to understand today’s monetary situation. Deception rules among the financial elite! To change, go back to First Principles! Study the history of money from 1792 to 2013! History reveals why we now live with a virtual digital monetary regime,  a global interconnected market, high-speed computers, speed of light transmissions, manipulated markets, and asset values which are mostly distorted.

Five representatives within 5 banks create the spot gold fixing. But what are they using as their reference point? If the reference point is a manipulated price within a manipulated market (created within the computer screen via naked shorts, etc.), then this spot fixing is meaningless! We need a NEW spot reference point (how about a select group of real-time DEALERS)? Let’s get this message out to the markets! My sense, however, is that the status quo will continue until the markets crash! For current fixing numbers go to:  http://www.lbma.org.uk/pages/index.cfm

The committee’s that set our spot prices for the precious metals (the LBMA and COMEX) now need to become AWARE that any spot price should reflect the general psychological VALUE which is created within the greater global marketplace. When prices for a one ounce silver coin diverge from dealer to dealer (by huge amounts) this is an indication that there is NO real-time reference point that is viewed (by the market players) as VALID. This indicates that there is NO objective reference point for setting prices. This means that all prices will be distorted, misrepresented, and manipulated.

Ted Butler is probably the most aware expert on the issues of market manipulations of silver and gold. A growing body of experts, however, now seem to recognize that the Spot Prices are distorted and mostly meaningless for determining VALUE! Will this awareness lead to meaningful change?

Capitalism can not function with these dichotomies. The foundational concept of economics and our Capitalistic System is the concept of VALUE. It must be an objective concept for Exchange and Trade to function properly! Today, we do NOT have an objective reference point! We also have subjective money units which we use to denominate VALUE. These subjective units make it impossible to measure or estimate longer term values. Where is this leading for the investment community? Give this concept of VALUE (and the establishment of a stable reference point) some consideration! Will the LBMA and COMEX desire to change their methods of determining the Spot Prices of Gold and Silver?

Gamblers know that ‘value’ emerges from one’s psychology. Value is subjective yet central to Capitalism! Value is derived and expressed via a PRICE (usually in dollars or another fiat currency unit). If our fiat currency unit (now an imaginary digit in the computer screen) creates distortions and false signals within the price discovery process, then our markets will become totally dysfunctional in time. This is where we are going at warp speed! There is now a huge disconnect between perceived VALUE (say gold/silver) and the spot PRICE. What can be done to resolve this issue?

Historically, our prices (for silver and gold) were relatively stable over time (say from 1934 – 1973). During this period our dollar had a psychological tie to gold. Gold prices were the official reference point for Value (internationally). Our dollar was also defined specifically in terms of gold ($1.00 = 13.71 grains of AU). These factors helped to maintain relatively stable prices over long time periods (even though inflation was growing rapidly in the USA).  Investors, lenders, and savers could plan for the future with some degree of certainty. Today, however, all this is ‘out the door’. We now experience a dollar with no tie to anything physical and a general consensus that ‘values’ derive from subjective reasoning. These factors produce volatility, uncertainty, a short-term mindset, and a general distrust of the entire monetary system.

This model does show that a market or spot price can be derived in various ways. The LBMA and COMEX committee’s now need to think about some new alternative for representing VALUE  (of gold/silver) on a real-time basis. Any new process must consider real exchanges of the physical metals (not phantom exchanges within the computer screen). 

The mantra’s today in the financial world are ‘more QE’, ‘more Liquidity’, and ‘more Bernanke manipulations’. Media personnel, like Larry Kudlow, CNBC, continue to express the mantra of our need for more Federal Reserve Manipulation going forward. Please Ben, don’t stop the QE…it’s needed for our recovery…is L.K.’s continuing appeal.  All this demonstrates the false economic foundations which have emerged in recent years. Will Kudlow’s mantra and psychology influence our Fed to continue these centralized manipulations? Only time will tell. My sense is that the market players will gradually become AWARE of what has transpired in recent years and then adjust their decision-making to reflect a more sound philosophy for the future. As the trading community grows in awareness and judgment, we could witness meaningful change!

Please Ben, don’t stop the QE operations. We love what you are doing to restore our Economy and our System! Create more bubbles which grow my effective ‘wealth’! Question: are digits (in the computer screen) WEALTH? What is real ‘wealth’ from the viewpoint of Adam Smith? Thomas Jefferson?

Watch the markets going forward. We live in changing times and also times where market conditions can turn seriously AWOL. Personally, I am expecting huge market fluctuations in the next few months. I don’t expect any of our Authorities to make any meaningful changes in the status quo. The situation in the Middle East is especially concerning. Will the situation in Syria turn into a real Black Swan Event in 2013? It’s seems volatile, to me. Stay alert and watch the greater Geo-Political events that are emerging! I do also sense that a sharp manipulated run-up in the prices of gold and silver will develop in time.  I am:  https://kingdomecon.wordpress.com

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