By Patrick A Heller
Only twice in the past 20 years has the price of Gold jumped at least $50 in one day - on Sept. 17, 2008, and last Friday. In both instances, the price of gold reached $800, though it did not reach that level until after the Comex closed last Friday. Gold set all-time highest price records in several currencies including the British pound, Indian rupee, South African rand, and Australian dollar.

Readers of this column should not be surprised by this sharp increase; as of the morning of Nov. 24 gold is up to over $825. A few weeks ago, I pointed out several upcoming near-term events where it would be likely that those manipulating gold prices downward would probably make their moves. The last of those events, the expiration of the December gold and Silver options contracts, occurred last Thursday.

Once these events were out of the way, I anticipated that there would be much less impetus to suppress gold prices. What I did not foresee was that the Dow Jones Industrial Average would fall to five-year low and the Standard & Poors 500 Index would hit an 11-year low last Thursday.

There is growing investor fear in the financial markets. I suspect, though I have not seen any data to prove or disprove this idea, that U.S. government officials gave orders to their trading partners on Friday, Nov. 21 to deploy all their resources to push up the DJIA. It is possible that the focus on manipulating the stock market may have left the gold market relatively free to rise on Friday.

The mainstream media reported that stocks rose on Friday because of the good news about who President-elect Obama may appoint as his Treasury Secretary. However, I think this was only a cover story to avoid revealing the extent to which stock market prices have been continuously manipulated this year by the U.S. government.

There is certainly a lot of information coming out to support higher gold prices.

" The World Gold Council reported early last week that gold demand, as measured in U.S. dollars, set an all-time quarterly record in the third quarter of 2008. It also stated that gold demand in the third quarter, as measured in metric tons of gold, was the second highest ever, topped only by the second quarter of 2007.

" The story that the Chinese government might be looking into adding substantial gold reserves now has a quantity attached to it - 3,400 tonnes (109.3 million ounces). This amount of gold demand exceeds worldwide annual newly mined gold production by 50-75 percent.

" Early last week, the New York Comex reported that significant quantities of gold and silver were withdrawn from the exchange to deliver against maturing contracts. If this trend continues, the risk will rise for a potential default on these Comex exchanges.

" The Perth Mint announced that it was discontinuing sales of physical gold and silver, noting that it is unable to keep up with demand despite expanding production to 24 hours a day, seven days a week. The Perth Mint will still accept orders for unallocated metals "in storage," but will not resume selling physical metals until 2009 at the earliest.

" Last week, Australia announced that 2008 Gold production in the country may fall as much as 20 percent below 2007 levels. South Africa's gold output this year is also on track to decline by a similar percentage. The decline of gold prices from March's higher levels, has already led to reduced gold mining output. This lower level of mining activity is almost certain to carry on for years, even if the price of gold doubles or triples by the end of next year.

There is a revision to the information I mentioned last week. The recent $3.5 billion of gold sold over two weeks to Saudi Arabian interests is apparently not to the government itself, but are the combined purchases by private parties. As one observer noted, if the government had made the purchase, it never would have been in the news.

The constant strong demand for physical gold any time the price had dipped into the $700s leads me to think that the dip down into the upper $600s earlier this month was the bottom of the gold market. While gold may not hold continuously above $800 this time, the market shows a strong likelihood of much higher prices in the coming months and only an insignificant prospect of much lower prices from current levels.

The jump in gold prices has brought some physical product onto the market. You still are typically facing 1-3 weeks delivery on U.S. American Eagles, Canada Maple Leaves, Austrian 100 coronas, Mexican 50 pesos, and the like, but the premiums at which they have been selling above gold spot are now down about 25 percent in the past few days.

The Silver price has also jumped almost 20 percent from its recent intraday low. We are seeing declines in physical silver premiums as well, though not to the same degree as gold. New ingot fabricators have gone into production, making it possible to get some product for much shorter Lead times.

If you want to purchase 1- or 100-ounce ingots, you should be able to take delivery within a few weeks for larger orders and may be able to find live product available for smaller orders. Supplies of U.S. silver American Eagles and Canadian silver Maple Leaves are still tight, but the premiums have come down on those as well.

At the huge Baltimore coin show this past weekend, demand for U.S. gold coins was weaker, especially for those priced above $5,000. The premiums on common-date type coins, which soared after the price of gold tumbled in mid-July, are coming down. I expect premiums to continue to decline if the gold spot price holds its current gains or keeps rising. Coin dealers are concerned that the overall drop in consumer spending may carry over into the numismatic market. (Courtesy: www.numismaster.com)

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