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Chris Martenson: Welcome to this Peak Prosperity podcast. I am Chris Martenson, your host. And today I am with Robert Mish of Mish International Monetary Incorporated (not related at all to the other Mish we regularly talk to).

Robert’s business is located in Menlo Park, California, and he knows as much about the coin market and precious metals markets as anybody you could ever talk to. He has been on the front lines of the precious metals business; selling, dealing, and buying rare coins, numismatic coins, gold, silver, bars; you name it. And with that front-line view, he has an extraordinary perspective, because he gets to see who is coming in, who is buying, who is selling. And there are some really interesting stories that we are going to cover, especially in light of the recent plunge in gold and silver prices.

But as well, and this is really important, he has been in business – the precious metals business, to be precise – for 50 years. So, he was there and he saw it back in 1980, during the frenzy of that last gold bull and silver bull. Robert, I’m very happy to have you back, because there has been a lot of speculation. There have been a lot of rumors. There is a lot of smoke, and we need to understand where the fire is. So, welcome back.

Robert Mish: Thank you, Chris, and as you said, greetings from the front lines of the gold coin and bullion business. I bring you and our listeners an eyewitness report as to how the gold community reacted with their cash to the price shakeout of the past two weeks.

Chris Martenson: Excellent; I love actions more than words. That’s the kind of guy I am. So, did I leave anything out of the intro that will help people understand just how deep you’ve been in this business?

Robert Mish: Well, let me first explain our point of observation. It’s a different one than Internet and institutional bullion sellers might have. As you noted, we are 51 years in business, 32 at the same location in Menlo Park, California. It’s adjacent to Stanford University in the heart of the Silicon Valley. We have a retail show room. Our experiences, perspectives, and observations come from grassroots buyers and from colleagues who come to us for re-supply when needed quickly. We do not sell from an Internet site, nor eBay listings or auctions. We do sell paper gold, gold for custody, or for third-party storage.

We meet and get to know most every one of our customers in our showroom. Much of our business is by referral – by introduction from existing clients, fund managers, and financial advisors, as well as other coin dealers. This puts us in an interesting and sometimes fascinating position to observe the temperament of gold and silver buyers and sellers, from small but consistent buyers to major investors, so preferring real metal, they will carry out impressive values and secure it themselves.

Chris Martenson: Well, I really can’t wait to dive into who is doing the buying and selling from your perspective, but I want to set the stage, so let’s rewind here. Here we are. It’s last Friday; huge plunge. It’s Monday; the plunge continues. Really, it is a historic drop. You have to go back 30 years to find an equivalent drop in dollar terms for gold. And from your perspective, we had a similar although not quite as large drop in 2008. We had another one in 2011. What was different or the same for you in how people reacted to a historic price plunge in both gold and silver?

Robert Mish: Whether or not there is something different about the Great Gold Shakeout of April 2013, it’s a common topic we discuss with both our clients and dealer colleagues. That is one of the reasons I’m on the phone sometimes until midnight. Spikes and plunges in the U.S. dollar price of gold; this is not new. It goes back to the early 1970s. We remember that for most of the past 40 years, physical gold and silver investors, particularly in the U.S., tended to chase big rallies and buy late, while too often selling after plunges or after long periods of price erosion. Gold was sold then primarily as an inflation hitch. When it was working, speculators bought much more. When it stopped working as an inflation hitch, they first became puzzled and frustrated, then fearful, and they sold out at bottoms.

So, fast-forward to this month, and today’s gold community starts to look a bit different, as the breakdown below previous gold and silver price support levels began, and especially last week, with gold below $1400. Physical buyers were outnumbering sellers in our store by at least five to one. And some of the unfortunate sellers had not changed their thinking about gold long-term; they just needed fast liquidity, which is another benefit of gold. We had one, who got caught being very long, leveraged gold COMEX contracts, and another very leveraged with gold stocks he had loaded up with too soon. He had deep regrets, but he had to sell a large quantity of Krugerrands to settle his account.

Yeah, well, we accommodated just a few sellers, mostly newer buyers since 2011 who bought for the wrong reasons. they bought because gold is going up. Well, their timing was not ideal. I mean, gold eroded for two years. They grew impatient, and when the banks through a media, anti-gold propaganda campaign turned up the heat in late February through early April, and the price broke below perceived support – and they were told in advance when that would happen – they panicked and sold. Many of them didn’t need the money. They were worried gold was going to $1000 or lower.

These are really just a few folks, and they were new faces to us. Maybe they bought on the Internet but got a quick lesson that you need a local relationship when urgency manifests, or they were recent buyers who did not read and digest the articles we forward regularly to our customers. They were not saving in gold; they were gambling. They don’t read Chris Martenson, or Zero Hedge, or Dollar Vigilantly, Jim Willy or Lou Rockwell. But again, unlike every major gold price drop, the physical gold and silver owners were really selling little.

Chris Martenson: And this 5:1 buyers-to-sellers you mentioned, that’s on a dollar basis?

Robert Mish: It’s on a numerical basis. We had good response from regular buyers who were not afraid of dips, so-called “corrections,” in the long-term gold market. Their attitude is, gold is on sale or I’m selling my way-overpriced Palo Alto house, said one. But the majority of people who have crowded our showroom daily are price-savvy working people and families.

Chris Martenson: Interesting.

Robert Mish: Particularly Silicon Valley tech workers from India. They are small buyers, but the gold community could learn a lot from them. They buy fully-paid, no leverage. They take immediate physical possession. If you don’t got it, they’re not going to wait. They may buy one, two, three ounces a month or more, accelerated on price drops. Those in the gold community who rightfully complain about collusion and manipulation by the bullion banks and their gold-short clients and government factors while they themselves are long paper gold are really losing the game playing in the banksters home court. Instead, I think gold bulls should best reexamine why they own gold, and treat gold as a storehouse of value, a savings, as liquidity out of the system.

They should be like the Chinese and Indians. Keep taking delivery of physicals. In a legitimate market, this will end the paper shorting, and more physical gold from the banksters back to the people. Or at least publicize, and sooner help bring down the corrupt paper market with snowballing events of failure to deliver, like what happened in late March when the giant Dutch bank ABN AMRO inverted their client’s physical gold accounts to paper price settlement only.

So, Chris, all those gold investors who allow the banksters to store their gold are vulnerable to what may be the banksters’ ultimate exit path when they declare an emergency force majeure, pardon my French. A failure to deliver with a conversion of the undelivered, non-existent gold to depreciated cash settlement bases their paper gold market, with the cash being created by the banksters and governments themselves in an emergency financial bailout. If I was a bankster, that is what I would do if I were trapped in a gold and silver short carry trade.

Chris Martenson: Yeah, they are just doing what they always do, which is, they are just making money. Two things that I really trust: One is that I trust actions more than words. And the second thing is that I think a bird in the hand is worth two in the bush. So, here is where I’m going with that: It feels to me like in the endgame of all of this, when the dust finally settles, there will be some moment when currencies have their final moment in the bonfire. At that moment, there will be two classes of people: (1) those in institutions and those that actually have physical possession of precious metals, and (2) those who don’t. And in that process, after the dust has settled, we will discover that the people who have the physical precious metals have a tremendous amount of wealth, and the people who don’t have lost a tremendous amount. It will be a rough transfer. And this is what the system excels at.

So I am really interested in who the buyers are. I understand the sellers; there are a lot of sellers. I heard stories that are rather tragic to me. I was talking with another dealer that runs IRA accounts and physical bullion deals as well, and they said almost all of their sellers were people who had paper gold and silver, in the sense that they had not taken physical possession. They had gold in 401K and silver in some sort of custodial accounts, and they hadn’t touched it. So, they were the quickest to part with it, because they just – it’s ones and zeros.

Robert Mish: They have no relationship to it.

Chris Martenson: No relationship to it. The buyers, though, let’s talk about them for a minute, because here is a theory I’m working on. Everybody I know who is in the business had a tremendous sales volume. There are obviously some shortages in some certain key products. My theory is that this shortage has happened almost completely with just a little bit of uptick in interest among those who predominantly already own gold or silver, or have already been in the market. That is, the market didn’t suddenly grow five times larger, meaning we have five times as many new entrants who have never bought gold and silver showing up for the first time, because the price signal sent them in. I am wondering if that is true or not. What would you say about that theory in terms of those people who showed up?

Robert Mish: Absolutely! I didn’t take statistics, but just thinking back on it, 80 – 90% of the people who have bought gold from us in the last two weeks on the drop were already gold owners, already gold savers.

Chris Martenson: And so with this high repeat customer base, how many people would you estimate in the population – percentage wise, who have money that they invest – how many of those people actually own physical gold or silver?

Robert Mish: Less than 5%, maybe; 1%, 2%, 3% at the most.

Chris Martenson: Yeah, in my neck of the woods, I peg it at about 1%. I could go to a party with 100 people in it and I would be lucky, I think, to actually find one other person who actually had physical gold. I might find somebody who had GLD or something like that.

But here is the thing. I want to talk now about the supply constraints that have shown up and whether you have experienced them, because what I have experienced looking at all of these other dealers, both at what I will call kind of a “retail level,” and I have talked to institutional dealers, particularly on the silver side, where there is just an absolute shortage of product. And that happened because the 80 to 90% of the people who were already involved in buying silvers just showed up and decided to do a little more of that, or gold. And so, that observation needs to be coupled to stage two of this bull market, which is when broad public participation where 10% or 20% of the population wants gold or silver, your perception on what would happen to the supply chain.

Robert Mish: Exactly. The powers that be guided a lot of that potential demand into paper gold and exchanged traded products of various forms. Then they slaughter those products, and I’m sure in their mind hopefully discouraged those people for a long time. But in time, changing cultures and the prosperity of people internationally in cultures which understand gold, I think is going to take its toll on the shorting game. And the shorting game will end badly, and that doesn’t mean that those who have the other side of the equation necessarily will profit, because they will find a corrupt way to burn them.

What we have now is like a game of chicken between the physical buyers and the paper shorters. It is like, who will quit first? We have a shortage of physical product, which I will explain in more detail. But we are told by the mint distributors and the refiners that oh, don’t worry. Two, three, four, five weeks your orders will arrive. If the buying continues at the pace it’s going, or begins to expand to a great percent of the population in this country and worldwide, eventually, by asking for delivery, the physical buyers will change the game. It is a poker game of both real cards and bluffing. Are the shorts bluffing? Yeah. But they get away with it over and over again. This time with the long fold as they have in the past, the shorts, they sandbag the river, but the flood of fees currency keeps rising. If buyers would stick to their guns and develop habits and understand why they buy gold and silver, the shorts will run out of sand.

Chris Martenson: Excellent. So let’s talk about the supply, then. What are you seeing from your end? I know that every time I have been to your store, you seem to have a remarkable amount of supply, and obviously you’ve got a very deep network, so you have been in business a long time. So you probably have as deep a set of supply chains as anybody could ever hope for in your business.

Robert Mish: Yes, that is one of the blessings of being in business long enough. You build up your own inventory and relationships, so when things get difficult, you are in a better position than many of your colleagues to service your customers. But I still can’t get immediate delivery of a lot of product.

I will start with gold. Gold is a little bit backlogged. The premiums are slightly elevated. Products commonly traded, such as gold maple leafs, American eagles, and refiner one-ounce bars are two, three weeks out. And for some of my colleagues further away in the supply chain, four, five, six weeks out. The premiums are up to maybe $5 to $15 dollars an ounce over normal, and I don’t blame the distributors for that. They are getting rationed. So they have to make more money on fewer ounces to pay their expenses, and it’s simply a matter of supply and demand. So the question is, what is it going to be like four weeks from now? Are we going to be caught up, or are we still going to be four weeks out? We will see.

Silver is another story. The demand for silver has completely overwhelmed existing inventories and the ability of the mints and their refiners to produce more product. The other big mystery is how much more silver is there to make product out of? Will the buyers be able to keep the pressure on until the price of silver and paper silver have to move up just to return the market’s equilibrium? Right now, 100-ounce silver bars, which were a few months ago were trading dealer-to-dealer around melt or a little over, are now 75 cents to a $1 an ounce – not retail, our cost – and four to eight weeks out. One-ounce and ten-ounce refiner product used to be 30, 40, 50 cents. Now it’s $1.10 to $1.25, our cost, two, three, four weeks out. Silver maple leafs, our cost from the prime American distributor of the Canadian Royal Mint today, $3.75. It was $1.70 a month ago, three to four weeks out. Silver eagles, normally a little over $2, they are $5 if you want them live; $4 if you want them in four to six weeks.

These premiums are the physical market saying, we are willing to pay this for real silver right now. Whether the suppliers can meet this demand and bring the premium down, we’ll see weeks from now. It is much different this time than it was in the past, in that the drop in price is bringing in buyers rather than sellers. It used to be that a rally would bring in the buyers. So we have had a change, and it’s not just in the United States, Chris. When I was in China and Hong Kong in early April, when gold first started testing support at $1540, demand was already heavy then. I was at the Hong Kong International Coin Convention, an event I have gone to since 1983, and dealers, investors from China, cleaned us out of Chinese gold panda coins, both bullion-related and premium dates – and that’s with gold at $1540 to $1580. We were getting $1700 to $1900 an ounce for common coins. Then ten days later, with gold in the $1300s and $1400s, the Chinese public cleaned out most every shopkeeper and bank bullion department of all their coins and bars. A few days ago, I talked to three of my English-speaking colleagues in China, and they say you can’t get anything anywhere. They wanted me to reship pandas back to them.

Chris Martenson: So, you've been going to this coin show since 1983, and what day did you get there, and how long does it last, and did you sell out by the end of the show, or at the beginning? How long did it take to sell out?

Robert Mish: Well, the show was Friday, Saturday, Sunday. I got there the Sunday night before, because there's an auction, and I have a lot of private business and clients that I see outside the show. And I could already see that I had to decide who my better friends were, because they all want the same thing, but by the show it was so packed there that if we were in America, the fire marshal would have closed it down. It's the same thing in India, Thailand, Dubai, China. Gold buyers are willing to pay 15% – 20% premium and take the gold as jewelry if that's all there is. And in Hong Kong, the cash-physical market, even for larger bars, which are always available cheaply there, was several dollars higher than the paper price.

In Taiwan, even today, gold is trading at a $60/ounce premium, because the central bank there controls the flow of gold in and out of Taiwan, but they still are willing to pay $60/ounce premium. In Central Europe, the common trade coin that they trade in Eastern Europe, they like the old circulating coins, for example, the Hungarian 10 kroner, they used to be available near melt. They're running 20% over melt. The common Czar Nicholas Russian 10 ruble coins – which are very common; it's the basic trade coin of Russia at the time – they must melt for a little over $350 today. They're actually trading at $550, and the 5 ruble, which melts under $180, they're trading at $250, and similarly all over. So if you got a tradeable product, a medium of exchange, something that is trusted other than paper, the market says gold is higher, silver is higher.

Chris Martenson: Pardon my ignorance. I need to back up around this idea of silver being four to six weeks out. I might be completely ignorant about this, but I'm wondering, is there a risk in here of somebody placing an order, and their silver is supposed to come four to six weeks out, and – tell me if this is an insulting question, or if this might possibly happen depending on the dealer you're with – but what happens if I place an order, and they say, oh, took your order, and six weeks from now, we'll have your eagles, and the price of silver, I don’t know, doubles, triples, does something? Is there any danger of that deal being broken?

Robert Mish: No, because the dealers get their price basis locked in at the time they make the sale, if they're smart. When we sell bullion beyond what we have in physical stock – in fact, even when we sell what we have, and we just want to replace the position, rather than sell down our position – our distributors and mints will guarantee your price. It's just the delivery lag time. If there was a default, it would come either from a major refiner (I won't name any names. I hope it never happens) or from one of the world mints that commonly make the product.

Chris Martenson: So, the risk, such as it is, exists all the way at the back end of the chain, down at the refiner or mint level?

Robert Mish: Yes.

Chris Martenson: All right; just wondering. I had always wondered about that. So, given that there's not a lot of risk in that as you see it, why is the premium for near silver so much higher? Why is the demand that much stronger now?

Robert Mish: Because certain buyers want it now, and they don't trust the delay, or they think that if they come back in four to eight weeks, silver will be a lot higher, and they're not willing to leave their money out. There are buyers like that. Others just don't want to; sometimes it's a matter of trust/faith; other times it's just a matter of finishing the transaction. Everyone has a different reason that they're willing to pay more, but with even the distributors charging more, it's a real market.

Chris Martenson: Yes. So, what I'm interested in, here, is I'm sort of triangulating in on this idea – you've described it; the sellers seemed a little bit forced, but the buyers, such as it were, really are mainly established customers at this point. And yet, there's still something different in the idea that we had this really big price drop, and what that did was just ignite, literally, a frenzy of buying worldwide. It wasn't just in a local market. It wasn't in the U.S. It's pretty much everywhere. Every country you could talk about.

So, what I wanted to get at here is, you mentioned that there's this game being played, and it's a question of who blinks. There's going be the paper sellers and the physical buyers. You and I – you much longer than I – and a lot of other people in the precious metals market are waiting for that moment when the paper people finally have to blink. And it might be actually disappointing to everybody who is on the other side of the paper trade, because they might find themselves, if they're on the longer side, getting Hunt Brothered, or whatever.

Robert Mish: Or, getting MF Globaled.

Chris Martenson: Or whatever happens. They'll change the rules to benefit the people who are entrenched, and that's just how the game goes. I'm wondering if there's anything in what you're seeing in these buyers and how they have behaved that tells us anything about when that day of reckoning might arrive?

Robert Mish: I think the hardest thing for Americans is the downturn and dis-allocations in the economy which have put a lot of people out of work, has caused families where both the wife and the husband have to work; has eroded the discretionary income above necessity income. I think there is a limit as to what new capital we can get from a good part of the population until such time as the Great Inflation begins, as a response to an inflationary scare as has happened in Japan.

I'm in an island here in the Silicon Valley where everybody is still very prosperous; there's a lot of discretionary income. But I hear from colleagues around the country that all day long, they get people in selling their jewelry, selling their watches, selling their parents’ coin collection, selling their own. They need money, and this has been the source need of a lot of the metal that has come onto the market through scraping and refining, but even that's finite. Too many Americans are broke and really can't participate, either as suppliers of metal or buyers of metal. But this is an international market, and you have the rising economies, and gold savvy cultures, and the rest of the world, and I think that's going to be the driving force.

Chris Martenson: Well, maybe I'm making too much of it, but it feels to me like part of what I took from the gold-buying spree that happened was that there were stronger hands entering this market than in any time I've ever seen, because in past times, the weak hands would have won the day. And you would've been swamped with stories of more selling than buying, but the opposite has happened. So it's those strong hands that make me think that if that day of reckoning really comes where the paper boys and girls have to really blink, and just exit all their positions, and get down to a normal trading volume in real commodities, then what I'm waiting for is real price discovery to actually happen, because my hypothesis is that the actual real value of gold and silver is much higher than the currently articulated spot price that we're seeing. And the entrance of strong buyers means we get closer to that day when pushing the paper price down works against you; maybe there's some relationship between price, and supply and demand.

Robert Mish: Well, exactly! I'm sure that what shorts was hoping to happen was that, by crashing the paper price of gold in addition to forcing paper longs to exit, they would cause a snowball effect where Americans and people around the world would exit, but the opposite happened. So if saving and gold, becomes more and more part of our culture, and the ability to save in gold with the prospering emerging economies continues, eventually the paper-short game will be over, but for now we don't know where we're at. We could be months away, or we can be years away, because no one shows their cards. There's a lot of bluffing.

Chris Martenson: A lot of bluffing, and I'm interested in that bluffing, because one of the stories I've been tracking is – and I can only do it anecdotally, as unfortunately, the gold market is about as opaque as anything I've ever run into. I have to sniff around the edges, and look at smoke, and distorted mirrors, and try, and figure things out like everybody. I haven't found anybody who can really say what's going on – an important point here is that the COMEX market, which drives so much, when the price crashed, that happened on the COMEX Market. As I've learned, the over-the-counter market for gold is much, much larger, and it's very, very private and it's very opaque, and it's not reported at all, and so nobody has good aggregated data. And so I don't really know what's happening there.

And yet, we wander over into the newspapers, and we find out that gold demand in China has been through the roof, and that India is just going bonkers at these prices, and that Thailand – the flow of gold from West to East seems more pronounced, now, than it's been in a long time, and it's going at a very, very fast rate. And someday, my hypothesis would be, the West is going to have to figure out how to prevent that from happening, and they can only do it one of two ways. They can raise the price so the East decides they don't want to buy it anymore, or they can shut the markets down. I think that's all that's really available as remedies, here, but what are you seeing in terms of that flow?

Robert Mish: Well, you did a nice article last week titled, Where is the Gold? And you worked with some statistics, and found a deficit as to more gold leaving the U.S. than reported, and I looked at that, and I said, yes. Why don't you add to that all the gold that leaves the U.S. that's unreported; all the Chinese flying over here and taking it, all the gold we export in the form of coin? And all that's hand-carried and couriered out. It's a lot more. You mentioned transactions that occur in the over-the-counter market. I don't know of any firsthand, but I am net-worthed enough to have heard more than once, secondhand, thirdhand that whenever a large transaction is needed, but it really can't go on the market, because it will affect the price too much, or there are too many unknowns in trying to source it, those over-the-counter trades will often occur at considerably higher prices than what we see in trading, just so they can clear that quantity quietly.

Chris Martenson: Right. So, there's an official price, and then a real price, and then, of course, we already see the real price at, sort of, the retail level, if I can place myself there. So, if I wanted to pick up the phone and get my hands on silver eagles tonight, you're telling me I'm going to have to spend at least $5 over spot, right?

Robert Mish: Yes. Sure, and a lot of that is dealer-to-dealer. We shipped out 5,000 pieces late yesterday to a major online seller at $4.80, and they're going to be getting $7.

Chris Martenson: Yes. All right, so, this price drop that happened – you've been watching the market for a long time, and I'm really interested in something you started with way back in the beginning of this podcast, which was that when we go back to the 1970s, I remember, gold was at $35/ounce, and it was held there. It was held there. Gold window gets slammed, then gold gets opened again for private citizens to hold, and it climbs all the way up to, I forget the number, but a little over $200. And then, oh, it got crushed. It went all the way back to $100; had a 50% price drop. So, that would be like going from $1,900 to $950.

Robert Mish: That was August of 1976 when it went to $102.

Chris Martenson: $102. And so tell me about what was happening, then, and what it felt like, and how people were responding?

Robert Mish: Well, the bullion business was pretty small in America. I can remember a lot of my colleagues saying that it was over, and of course, that's what makes bottoms; it wasn't like today. There wasn't great buying. It was kind of quiet, and people didn't know whether to buy, or sell, or just to go about their business, 1988 was something else.

Gold climbed a Wall of Worry that did not get participation until it went to $250 – $300, and then it started to get volatile, again.

Chris Martenson: Volatile meaning, it's up and down whole increments?

Robert Mish: Weeks where it would go up or down 10% – 20%, yes.

Chris Martenson: Ten – twenty percent? And so, it goes from $100 to – what'd it top out at, about $850 on that intra-day?

Robert Mish: