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Physical Gold Demand Bids Up Common $10 and $20
By Patrick A. Heller

The so-called "Bailout" to benefit Wall Street that was signed into law late last week has done nothing to stabilize the global financial markets.

In fact, financial markets are declining around the world. Last week, when the government of Ireland announced that it would guarantee all account balances in the nation's banks, German Chancellor Merkel initially attacked the action. The next day, Merkel announced that the German government would guarantee all accounts in its banks. Greece has also announced a guarantee of all accounts in that nation's banks.

On Monday this week, stock markets around the world fell anywhere from 4 percent to 15 percent. The Dow Jones Industrial Average hit its lowest level in four years.

To help support the U.S. dollar, foreign central banks have loaned the U.S. government hundreds of billions in the past few weeks. By absorbing U.S. debt, the central banks have helped prop up the value of the U.S. dollar and also artificially held down U.S. interest rates. As soon as some of the "bailout" funds are released, a lot of this debt will return to the United States. The ultimate effect of this returned debt will be to knock the value of the U.S. dollar down so quickly that there is a significant risk of a complete collapse.

These foreign banks will not be safe simply getting rid of U.S. dollars. Pretty much all paper currencies are at risk of significant drops in their values. So, as the foreign central banks cash in these "markers," expect a substantial amount of the funds to be used to purchase gold and silver.

In effect, almost as soon as any funds are released for the "bailout," the U.S. dollar may be doomed, other currencies could also be crushed and gold and silver prices could explode upward.

Gold and silver coins and ingots are almost non-existent anywhere in North America, Europe, the Far East and Australia. Premiums on what merchandise can be had are far higher than commodity market prices.

Banks in Europe, if they can find any, are willing to pay 10 percent to 15 percent over gold spot to buy Krugerrands or sovereigns. In the United States on Monday, some dealers were bidding well over 30 percent over intrinsic value to purchase immediate delivery silver coins or ingots. There are many reports of retail buyers paying more than double silver value to acquire U.S. silver American Eagles in recent days.

Partly in response to the lack of availability of gold bullion-priced coins and ingots, several buyers are purchasing common-date U.S. $20 and $10 gold coins in all grades. Prices are up sharply in the past few weeks, as much as 25 percent to 30 percent in some instances, with supplies dwindling rapidly.

As difficult as it is to find and purchase physical gold and silver now, I expect it to get much worse in the next few days and weeks.

Effective Jan. 1, 2009, the Australian government is imposing a requirement that sellers of gold coins and ingots must keep records on purchasers to have available for reporting to the government. This is even more onerous than the regulations for Section 352 of the U.S. Patriot Act. Section 352 regulations require most U.S. coin and bullion dealers to obtain positive identification of buyers and sellers of physical precious metals (above a threshold amount), and keep this information available to show to the Internal Revenue Service on demand. In these turbulent times, expect even more worldwide government reporting requirements and restrictions on owning gold and silver transactions in the near future.

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