An Official Market and a
Free Market in Gold and Silver
by Mario Innecco | October 6, 2008Print
I remember when I lived in Brazil the local currency was like confetti and if you wanted to protect yourself against inflation and currency collapse you had to hold U.S. dollars. Holding dollars, if you could get a hold of it, was very worthwhile as every month that went by you could buy a great deal more of cruzeiros, new cruzeiros, cruzados or reais.
The other aspect of the currency market that I always found interesting was what was called the parallel or black market. In the parallel or black market one would always get a much better exchange rate for the U.S. dollar than one would get at a bank. Banks, of course, are under the control of the central bank and as a result the exchange rate was controlled or manipulated by central bank foreign exchange activity.
Travel agencies and other businesses related with foreign transactions dealt in this so called black market in dollars. In reality this was the free market in dollar for the Brazilian holder of dollars. It was called a black market as the banking establishment wanted to disparage this market and make their rapidly depreciating currency look a lot better than it actually was.
Recently in the developed or Western world we have started to see a great disconnect between the inter bank and comex price of gold and silver and the price of gold and silver coins and bars that one has to pay dealers, jewellers and ebayers. Gold sovereigns are being sold in London at anywhere from a 10% to 12% premium while I have heard that krugerrands have been bought, when you can find them, for as much as a 15% premium on the official inter bank price!
We, at forsoundmoney, believe that this disconnect between the official bank price of precious metals and the price for coins and bars or real physical gold and silver is simply a reflection of the manipulation by central banks of the inter bank and comex market. This official market is in reality a fictional paper market for the precious metals and does not reflect the free market price.
Have a look at this one troy ounce krugerrand on ebay! The bid was at £530 or $938 when I wrote this posting! That is a 12% premium over the closing bid of $834.80 on Kitco on Friday the 3rd of October, 2008.
Look at the price of this one ounce of silver bar on ebay ! At the time I wrote this article this silver bar had a bid of £10.99 or $19.45! That is a premium of 74% over the closing price quoted on Kitco for the 3rd of October, 2008!
There we have it! The Western central banks can try to embellish their currencies but the free market is not buying it!
Copyright © 2008 Mario Innecco