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Chill out dudes

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Published : April 29th, 2013
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( 7 votes, 3.4/5 ) , 8 commentaries
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Category : Market Analysis
OK, it is all getting a bit silly out there on the gold interwebs, particularly in respect of the supposed physical-paper price disconnect. I have been trying to kill this meme ever since it first appeared in 2008 but it seems the idea of production capacity shortages seems too difficult for many to get.

The "real" price of gold isn't what you pay for a 1oz coin on eBay. As Mish says "Premiums on small denomination coins is not the same a general premium on physical gold itself." But don't take his or my word for it, here's what Jim Sinclair says:

"For many retail investors around the world they are dialed into the paper market in various exchanges. The second market is a small one, but popular among retail investors, and that’s your corner or even major coin dealers. But neither of those are in fact the real gold market, which is the cash market for gold. This is the cash market for 400 ounce deliverable fine gold bars. That represents the true price of the market on any given day. ... for the physical market, not the coin dealers, but the real market, the 400 ounce deliverable market and Asian type settlement ..."

So what is going on in this real market? Well, don't look to Jim Willie who thinks that "those who purchase metals in bulk are having to pay $2000 or more an ounce for gold in the Asian markets". I work for the Perth Mint and we sell tonnes and tonnes of gold kilo bars into Asia every week and we'd be lucky to get a few dollars of premium above the so-called fake paper spot price. That tells me there isn't any stress in the wholesale markets. So COMEX and LBMA aren't going to be failing any time soon.

Then we have the ABN Amro story with John Embry claiming that "the Dutch Bank ABN AMRO came out and literally said that if you have allocated gold with us, you can’t have it. That, to me, is a default". Sorry, not true, thanks to About.Ag who found this link to the English translation of the conditions of those accounts and on page 6, section 4.3, it says:

"1. You have no right to the physical precious metals which you invest. However, under certain conditions, you can physically obtain the precious metals. ... 3. You cannot always physically receive the precious metal. ... In that case, you therefore have no rights or receivables vis -à-vis DBN or the bank."

Sounds like a classic bank unallocated account, which unlike the Perth Mint's, is not necessarily backed by physical. So it is not a case of default.

Final example is Bill Downey's claim that "the London physical platform that buys and sells physical gold gets locked up. The system freezes". When I told Dan at The Fundamental View that there was no "the" London platform, he followed it up and discovered that:

"The screen shot in the article is not of a "physical" market but just a trading platform from a bank (one of many, each BB has their own platforms) for trading spot unallocated XAU/USD FX pair. The post made it seem (to the unaware) that this was "the" London platform. – Mr. Downey acknowledged this error in his email to me. ... His articles made it seem as though the system “shut down and locked people out from placing orders”. To his credit, Mr. Downey admitted to me that this could not be proven and that this was simply speculation on his part. He did admit that orders could still be phoned in."

Simply speculation on his part. This price drop seems to have resulted in a lot of that. Look, it is great news that retail investors have gotten a bit smarter and are buying on price drops rather than chasing the price up like they have in the past, but it does not portend the end of the (paper gold) world, yet.

If you want to be a little smarter, consider what I said to Ed Steer today, "buyers really need to go for the cheapest physical they can and be a bit more flexible on who makes it...or go from coins to bars. Paying high premiums just because you want a certain brand or bar size, just means your money buys less ounces, which takes less ounces off the market."

I note that Sprott's gold trust is trading pretty much at spot. So if you are a suspicious goldbug, which is why you want physical, then doesn't it make a lot more sense to buy the trustworthy PHYS at spot and then when this rush dies down, to sell your PHYS and buy physical coins/bars at more reasonable premiums? Funny how none of the physical pumpers mention this. That's because they can't make money off exorbitant fabrication premiums if you buy PHYS rather than their coins.

Like the post title says, Chill Out, and think a bit deeper about the memes being pushed on you. To help with that, suggest reading this speculation that Andrew Maguire is a US Federal Reserve double agent. That site is a joke by the way, for those without a sense of humour, although the question of why Andrew hasn't produced a CV to stick in Jeff Christian's face is valid and something that puzzles me and some on this Kitco forum thread.
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Listing the facts again:
1) Before the chrash, Chinese foreign reserves only were sufficient to buy 69,000 t at the that price
2) At this moment, Chinese foreign reserves converted into gold are worth 76,000 t
3) the total amount of gold on this planet is 160,000 t
4) the total amount of commercialy available gold is 76,000 t
5) at present prices China only can buy all the commercially available gold on the planet
6) China will not allow Bernanke to devalue their reserves, and will not switch to Euro, which, according to Germans, has up to five years to live
7) China will convert their entire foreign reserves into gold, only if they can, trying to keep the market steady as they do
8) China is limited by time constraint (US fiscal collapse) on one side, and gold supply constraint on the other, with gold price limiting (but only before the price chrash) the ammount of gold they can acquire,
9) paper gold market is rigged, since penalty for non-delivery at the contract expiry is symbolic. Having enough cash one can generate any gold price one wants.
10) the interest of China is to bring the paper gold price down, increase physical gold supply (haisten fiscal collapse in EU to force EU reserve gold onto the market), postpone fiscal collapse in US

It's very likely that China is manipulating both gold and silver markets, using two banks as henchmen. There will be no disconnect, if they can help it, and very soon they will be handling both ends of the trade in both paper and physical markets until all the gold is in China. Then they'll pull the plug, and the lights in the rest of the world will go out .
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This "Article of Diversion" doesn't explain the fundamentals. Fundamentally, all the central banks are buying gold. Fundamentally, Germany can't get "their own" gold back for SEVEN years. Fundamentally, MF Global had to confiscate customer's gold. I could go on and on, but I have a day job that has nothing to do with GOLD nor mis-leading people for money.
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I bought some metals a week or so back from a reputable dealer. A contractual arrangement online.My receipt said it was ready to be picked up.
When I said I was coming in tomorrow to pick up said metals I was told..." its not available"
So my conversation,after a bit of too and frowing and obfuscation went something like this.

I will be in at 9.00 tomorrow to pick up my CONTRACTED purchase. I do not care how it is split up.I just want the same weight. wont be ready can you come in a few days time. " repeat as above".

I am a long time customer of your can get it from somewhere or somebody else's order or the media will be sitting on your front door with me discussing " breaking a contract" with the owner.
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Ok, I'm not an expert on the subject but I have done some extensive research since I've started "stacking" about a year and a half ago. I will not buy into what this guy, Suchecki is saying. According to the CBC Documentary on "The Secret World Of Gold" there is only enough gold in the world to fill three Olympic size swimming pools. I know gold is heavier than a lot of other metals but still, that's not much gold when you consider jewelry and other forms of gold. I admit, when you hear of 6 tonnes of gold, that's not a huge volume but still, only three pools volume in the world? Plus I understand that the PAPER gold/silver market operates much like fractional reserve banking. I just can not believe its all there on demand if everyone decided to take delivery. And, on one more of Suchecki's reasonings, the U.S. is one of the top ten silver mining producers in the world but the U.S. mint had run so low recently that they have had to find silver to import from other countries. (I wonder why the govt doesn't just pull this needed silver out of OUR reserves. Haha!)
I may be completely off base here but this is my opinion.
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Actually I agree with Bron and I think he is a very good authority on the metals scene.

My view is this. This is a short term supply/delivery problem.

There is and never will be a shortage of GOLD.
There will be a withholding of gold by the owners of gold because they will not sell it for increasingly worthless paper.

People will then realise looking back at this time that they should have bought gold at any price up to the nominal high already set.$1900.

I also agree with Sinclair...GET OUT OF THE SYSTEM, because WHAT POSSIBLE HARM CAN THAT CAUSE?
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There has to be some kind of world wide shortage of gold, or it wouldn't be worth anything. If it were as common as lead, it would cost the same as lead.
In the paper market, I just cant believe that every piece of paper has the gold or silver to back it. OK, maybe Perth Mint does. That's is where Suchecki is employed. And, yes, his point that physical gold price follows the paper spot price is true. Im not going to be trading in paper any time soon though. The reason I've started buying physical has nothing to do with getting rich quick, its more of a safety issue with me. So paper of any kind just doesn't spell 'safety' to me. I guess its all in your perspective of why you're in PMs.
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Mate there is plenty of gold. It is almost impossible to destroy the stuff.
Gold is not a commodity like wheat, sugar,rough rice etc which are subject to supply/demand issues.
Even though gold is traded on the futures market I would suggest that the contracts are 99.9% of the time are cash settled.
Bron showed that Comex has plenty of Gold and Perth Mint ship tons to Asia.

However none of that really matters. Gold is money.
I am of the firm belief that there will be a total disconnect between the physical and paper price because people will not want to sell their gold for confetti in the future.

For eg say someone had enough cash to step into the futures market and go long today and they were right in their timing and the market is going up up up and they can handle the inevitable profit taking etc and they roll over for a couple/few of years and have made a handsome paper profit because gold is $100,000 an ounce he can cash out but he wont be able to buy gold because it wont be for sale at any price except by an idiot.
Like I said, Im not an expert. That means you may be completely right on the first part (or I'm completely wrong). It sounds like we're in agreement on at least the last half of your reply. Gold IS money.
I loved it when Ron Paul asked Bernanke if gold was money. Bernanke's look was priceless......or clueless.
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Listing the facts again: 1) Before the chrash, Chinese foreign reserves only were sufficient to buy 69,000 t at the that price 2) At this moment, Chinese foreign reserves converted into gold are worth 76,000 t 3) the total amount of gold on this planet i  Read more
end - 5/2/2013 at 3:02 AM GMT
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