99% of the people do not understand the monetary system and the role of gold and silver yet the Perth Mint is running out of capacity. What will happen when gold goes to $5000 in 3 years as more and more people realize what is really going on? That is the time we will have the real shortage. This is not 1980. Higher interest rate will not work this time. Mark my word and come back to call me idiot in 2015 if I am wrong. I will do the same.
Anecdotal evidence from the trading forums on Silver Stackers shows that when price runs up quickly (e.g. beginning of 2011) trading volumes on the forum rocket - both buyers and sellers, with increasing margins. Kilo PAMP bars changed hands at premiums of up to $180/kg over spot as people dashed for metal before they "missed the boat". Conversely, now that I have a role in a dealership, when prices plummeted like at the end of September, it was a case of witnessing people "back the truck up". Either way, when there's dramatic swings in price either direction, there's a surge in trading activity - and every trade has both a seller and a buyer. Right now we've been in "back the truck up" mode for the last month, which neatly fits with a bullish outlook.
You have to listen to the people who were right year after year, but the Perth Mint management and the WA government is listening to the people who were wrong year after year. Unfortunately even if they double their capacity (WHAT THEY WILL NOT DO) it will not be enough.
It seems that we agree that high trading volumes in isolation cannot determine whether the associated demand at the given price level will be sustainable over the medium to longer term. The increased demand that occured during rapid price increases earlier this year could not be maintained. It was a mini-bubble, which popped at the end of April. My memory is that there was much less demand in May than there is now. And this is despite the higher May price compared to now, which some would say prompts higher levels of demand. Maybe monitoring the levels of above-spot premiums would be a much better (inverse) indicator of medium term demand. I would have expected PM to have access to a mass of sophisticated analysis to help them with managing their product forecasts and inventory levels. Anyway, this is all just an academic discussion. The thing that really frustrates people, is that despite all their insistence that they don't care about absolute price levels, the Perth Mint always seems to have no stock for sale whenever the price drops.
Perth Mint is unique amongst WA Government enterprises in that our mandate is to make a profit and we do not get ministerial directions as to how to do that. Utilities like water and electricity are for profit but their activities are politically sensitive so probably do get more "direction". Coining is also medieval technology from that point of view. Medieval technology methods produce medieval rates of output. The issue is that we need to produce high levels of output and this necessitates automation and that modern technology is complex and costly. The criticism was that the manufacturing process was simple so what is the problem with making lots of product. My point is that producing lots of product means the process are no longer simple. You have completely ignored or tried to address my point that it is hard to get staff in WA and just say we should do more. The discussion was about bars, I wasn't going to get sidetracked about coins. There is no monopoly on coins nothing stopping anyone from importing coins from other Mints. There is only a monopoly on Australian legal tender bullion coins (although RAM does produce a silver coin). In addition, there is nothing stopping someone from minting their own coins/rounds just like in the US (or importing those). The problem I think is that investors have a strong preference for Government issued coins. I discussed this issue in this blog post http://goldchat.blogspot.com/2009/05/government-issued-bullion.html quote: The fact is that Government mints are generally conservative organisations and are thus a bit more cautious about making capital expenditure decisions to ramp up production in the face of increased demand. Private mints provide welcome flexibility and are probably more likely to want to take a risk on gearing up to meet demand. This is needed - as I point out in this blog http://goldchat.blogspot.com/2009/01/why-are-there-not-enough-coins.html, the industry as a whole was/is not ready for any significant increases in demand for gold coins. If gold ownership is to be more widespread, we need more capacity, and quickly as the rush could come any day if people lose confidence in the modern experiment with fiat currency. I'm a firm believer in free and fair competition and certainly some Government mints could do with it and some will fear it, too bad. Let me close with a plug for the Perth Mint. Of all of them, the Perth Mint is probably best placed because while it is owned by a Government, is not subsidised and does not have a circulating currency business to help with cross-subsidising its products. Therefore it has had to survive by competing with private and Government mints and so is ready for the challenge. I didn't have the number to hand and it wasn't a key figure as we just bring in additional if we need it. It is around 150t to 200t depending on scrap and a bit of direct silver mine refining. 1000oz bars stacked 1 tonne to a pallet do take up a lot of space and if we were to stack smaller bars it would take up more. The point is twofold. 1 with the increased demand we have seen over the past 5 years we are already pretty tight for space and 2 you can't just "up" insurance cover, it is not like home contents insurance there are limits to how many billions Lloyds are willing to be on the hook for. I suggest you and BBQ read http://goldchat.blogspot.com/2008/06/gold-value-chain-part-iii-manufacturing.html which explains why no manufacturer of precious metals products "buys" or "invests" in precious metals and instead hedge themselves. This is just my opinion, but your response was weak as you avoided many of my comments and just repeated yourself (medieval, get more staff). Anyway, my response wasn't to make excuses, it was just trying to provide some detail on the issues involved. The problem probably is that we are spending it far too wisely, as in conservatively. Yes we have many areas we need to improve and are working on them. My point about the dollars was to show that we have spent a fair bit expanding relative to what we had five years ago and that we are constrained by have to be self funding. We can't go out like a listed company and issue more shares to get more money.
Minting coins is not seen by politicians an essential service like mail or transport etc. We'd love it if some of that NBN money could come our way, maybe you can form a group to lobby government to give us money. In the meantime we have to submit our capital expenditure plans to our Board and Government and work within the restrictions they give us.
Not defensive at all, just trying to explain the issues we face running a business within funding constraints. Yes you guys, our customers, see problems on the horizon, but the other 99% (of non PM buyers) don't and thus neither to politicans. In the meantime we are doing what we can to make as much as possible. Question however, why is it all up to us? Where is private enterprise? Plently of private mints in the US, why aren't they exporting to Australia or setting up operations here?
We are just not at that level. The US Mint's operations are huge compared to us, we are a boutique mint in comparison and thus I think it is an unfair comparison. Considering that we have a cost of freight that US and Canadian and European mints don't have, we are doing pretty well with a 6% worldwide market share of bullion coins. Re bars, we have never been a supplier of small bars worldwide. Our production of bars has always been just for local market, which for many years has been a small market.
I didn't cover "what we are doing" because I'm not responsible for those business areas and it is not my job to do so an nor is this an official response. My contribution to this forum is educational, just like my blog. I'm stretching it a bit using work time for this. We know we have areas to fix up and Ron acknowledged our website issues here http://www.perthmintbullion.com/blo...pension_Of_Silver_Dragon_Orders.aspx#comments It is probably more appropriate to leave comments on the corporate blog about the problems.
Agreed, I've been saying this for a few years now. http://goldchat.blogspot.com/2009/01/why-are-there-not-enough-coins.html - The conclusion is that we will continue to have coin shortages (and high premiums) while retail demand for gold continues. http://goldchat.blogspot.com/2010/06/coin-shortages-coming.html - If you believe there will be increased mass market demand for gold going forward and like your minted coins or bars, then stock up now because you will face premium increases and/or rationing. See also http://goldchat.blogspot.com/2008/08/fud-fear-uncertainty-doubt.html where I discuss two possible scenarios regarding shortages. In the short run I think I was right with scenario 2 but scenario 1 may now be coming into play. Below are the two scenarios (you'll need to read the post to get the context and it is relevant to the issues discussed in this thread): Scenario 1 Given the natural conservatism described above and the continuing retail demand we see continuing shortages of retail forms of gold and silver, probably occurring in a stop/start fashion as one supplier catches up and then another runs out. This erratic supply increases premiums for retail bars and coins. This fans further hysteria about "shortages", driving more retail demand. Industry executives see the demand and premiums and finally see profit and decide to ramp up production. During the delay in getting capacity online (some quicker than others depending on how their production process are set up) the hysteria continues, increasing retail physical demand. The retail shortage "story" is picked up by more commentators and increasingly by mainstream media, who in their ignorance create the perception of a shortage of wholesale physical. Fanned on by retail dealers who are making a killing from marking up bars and coins, conspiracists who think this will be the straw that will break the (short) camel's back, and those who recommended investors into gold and silver, this drives average investor and speculators into the ETFs (because they are comfortable with this investment form and don't have any idea how to buy physical even if they wanted to) which drives the gold price even higher. Eventually capacity will come online and retail bars and coins are supplied and stories of shortages dry up. Now there are two possible end games: a) The hysteria process reverses as product is easily available. Perceptions change, there is now "oversupply" of gold, talk of similarities with the 1980s bubble, demand contracts and price drops, savagely. Lots of egg on certain faces. b) Product is easily available but that has no effect. Retail demand is at a new level and remains there, the "shorts" have been broken, gold has moved to a new "level", reclaimed its inflation adjusted price. The public are aware of the gold and silver again, distrustful of fiat currencies. A new Golden Age has dawned. Lots of egg on certain faces. Scenario 2 Retail demand for gold and silver, while significantly higher than in the past, is not significant compared to the wholesale physical market to really move the physical spot price. Combined with the possibility that suppliers may be more flexible in production capacity than we suspect, product is brought onto the market in a few months. "Shortage" stories dry up, retail demand drops. Lots of egg on certain faces.
"Every business sector" does not face the rapid demand changes precious metals does. Bread makers don't suddenly find that this month's demand for bread has doubled. Do you think Holden's market share in the large car segment dropping in half in a few months? You have ignored my point which is that demand is related to precious metal prices. These are not forecastable in the short or long term. There is no secrete industry information that can help with this. If I could produce a model that forecasted our sales within +/-20% accuracy I'd have left by now because I'd be able to make a fortune trading gold. It was not a major upgrade. We had to do an extension for other reasons and this gave us some more space to put in a dedicated silver bar line. We are now at the point where we don't have much space left at our Refinery or Mint. The only way to really ramp up production is to acquire a new site, and that is a big dollar commitment you don't take if the bull market is all over in 2 years. Guess what, up until this last silver price correction, the only relationship was if price up demand up, if price down demand down. According to your criteria that is an unsustainable bubble, yet the bull market has continued for a decade. The price fall, demand up we recently experienced is actually an anomaly and the first time I've seen it. It could signal a shift into a new phase in the market because before people were discouraged by price falls. Now we may have stronger hands in the market. That is why we have had "conservative forecasts and infrastructure investments". The question I have is, is this demand increase in the face of a price fall just a one off? What I'm trying to say is that the demand we see is very erratic, even though the general trend is upwards. That makes us unsure. I'm pretty sure if I showed any engineer our erratic and oscillating demand figures without indicating what is, they would conclude it is an unstable system. It is not as "fairly obvious" as you think. I mean, even amongst the goldbugs there is no agreement as to how high or when the market will peak - $3000, $5000, $10000? Each of those price predictions means a completely different decision to ensure that "capacity is not exhausted".
This was an interesting development that i just noticed: 2009 The Australian Koala $1 1oz Bullion Silver Koala Coin 2009 ------- 336,757 2010 The Australian Koala $1 1oz Bullion Silver Koala Coin 2010 ------- 233,531 Kooks sold out both years (300k) and so did lunars. I wonder what saw a reduction of 100,000 1oz coins purchased from '09 - '10?
Only a possibility to consider, but If there are severe constraints on production, and the Mint is diligently producing what it's purchasers want, then you would expect that priority would go to the Lunars (all sizes) and Kooks. Huge demand for larger size coins in Europe (especially Germany where Legal Tender Bullion is taxed less than bars) would also contribute to this demand. The last two years are those that the Kookaburra was minted to capacity, it stands to reason that if there are constraints, the hapless little Koala will be the last out the door. Minus capacity constraints, it's possible that they could have sold more Koalas last year. Ck.
FYI, I called into the Perth Mint today for a fix, cash in hand, however the bullion dealer informed me that they were no longer (for the immediate future) taking / filling orders for silver bars of all sizes as they could not commit to delivery times. In general discussion I was told that demand for physical, not necessarily in Australia, but other parts of the world is going gangbusters at present. Still managed to walk away with silver albeit in a diffent form and second hand not that it's an issue.
The Perth Mint: Bron Suchecki speaks Once in a while I get an e-mail from Bron right out of the blue...and I got one last night. It's not often that you get to read about the internal goings-on inside a mint during a production shortage, but here's your chance. Bron is answering critics of the mint...and he does so with great patience, as the quality of some of the comments directed his way are far from mature. His comments, posted over at the silverstacker.com website, begin at 19:01:36 on October 17th...linked here...and continue again about half-way down page 5, which you have to click on when you get to the bottom of page 4. It's unfortunate that he has to put up with some of the crude and ignorant remarks that are posted on either side of his comments. I'm sure he didn't mind the debate and criticism, but I'm sure it was hard for him when he's obviously dealing with people who have no commercial production understanding...and aren't prepared to accept that it may not be as simple as they think. I'm sure the fine people that work at TPM aren't perfect, but I'm sure they're doing the best they can under the current circumstances. - Ed Steer
Did anyone notice - perth mint sold out of all silver bars... i was waiting for my identiy check to go through so i could buy 100oz tomorrow but now will have to get from somewhere else. Im totally bummed - I know its not the Perth mint's fault - they sell what they have and they dont have any at the moment. What else can you do when ETFs are buying/selling 2billion oz more than physically exists above ground! Those etf that dont have backing are going to really piss people off when they cant deliver Ag and need to settle in cash.
There are plenty of business sectors that have rapid changes in demand. In fact just about every commodities miner is subject to major demand volatility, and they have much longer infrastructure development timeframes and much greater capital costs than Perth Mint. There is nothing unique about precious metal demand volatility. No mining company can accurately predict commodity prices years into the future either, but they still manage to make demand forecasts. The Perth Mint has it better than other industries in many ways, as their product does not have a limited shelf life and it is not perishable. Unlike bakers and vehicle manufacturers, who have more problems to worry about with their inventory. The point that you have actually made is that demand is NOT related to precious metals prices. You have said that demand has increased recently with lower prices, whilst in the past demand and price have moved in the same direction. When a premise sometimes predicts economic behaviour and sometimes doesn't, then it is invalidated. It is particularly useless if the proposed relationship breaks down at the "stress points", when the predictive ability is most needed. Economic theory also states that prices are set at a point where supply meets demand, as agreed by a willing seller and a willing buyer. Demand is not directly determined by price, on the contrary, it is price that is determined by demand. In other words, predicting demand is not the same thing as predicting price. If price did predict demand, then no drinks would be sold at nightclubs and no pies would be sold at football matches, when people could buy them elsewhere at much lower prices. Not a major upgrade? That's not what the Perth Mint said in its website blog entry of 21 April: "By July we will have effectively doubled our manufacturing capacity, ensuring that we are able to meet the tremendous interest in our 10oz, 20oz, 1kg and 100oz cast silver bars." No mention that they would only be able to meet the tremendous interest for 3 months, when the silver price dropped, and all bar sizes were made unavailable for sale. So what will it take for the Perth Mint to make a major upgrade? And if not now, then when? Does the mint need 10 years of guaranteed high demand before it will fund an upgrade? How can this ever happen, given the mint's admitted inability to forecast demand? And why is the Perth Mint so afraid of making a decision? In the worst case scenario, maybe the mint could expand production, and bring it online just as demand drops. So what? The decision could still be justified based upon the information available at the time. The investment can still be written down. Do you really expect WA taxpayers to riot in the streets? Over a written down investment and the possibility of a reduced dividend to the WA government? When governments already waste millions more themselves, and bail out private banks who don't ever pay them a dividend? The premise that price and demand were fully correlated (until recently at least) was yours not mine. I said "that demand that increases dramatically with price is an early warning sign of an unsustainable bubble", and I stand by that. Bull markets often have lots of mini-bubbles, which become unsustainable, and are followed by a correction. These mini-bubbles don't have to end a bull market. It is usually one final mega-bubble that does that. But I am again surprised that the current situation is the first time that you have seen high demand with lower prices. Almost everybody I know in the precious metal community was complaining that they could not source silver during the 2008 price correction. Did the Perth Mint have huge stocks for sale that nobody knew about? Conversely, I don't remember the Perth Mint making silver unavailable for sale when during the mini-bubble in April this year, despite your claim that demand increases with price. I do however remember that silver was made unavailable when the prices dropped in the subsequent correction in May and June. Of course, PM advised that that was a supply issue and not a demand issue, given the pending commissioned of new production equipment. http://www.perthmintbullion.com/blo...ng_Our_Silver_Bar_Manufacturing_Capacity.aspx Nevertheless, the effect on customers was the same: no silver is available whenever the price drops.
