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Gold
Lower Despite “Panic” Due To “Supply Issues” In Inter Bank Gold Market
Gold fell again today to its lowest in a week despite continuing
uncertainty about the outcome of the Brexit referendum. This is contributing
to very significant high net worth and institutional demand in recent days,
particularly in the UK, which is leading to “panic” and “supply issues”
in the interbank gold market.
Supply issues which respected gold analysts and ourselves have warned in
recent years were taking place, would deepen and would ultimately lead
to a reset of gold prices to much higher levels.
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Increasing speculation that Britain may vote to stay in the European Union
and hedge fund liquidations are being blamed for the recent price falls.
However, bullion dealers such as GoldCore, mints and refineries that cater to
the UK market have seen minimal selling this week and in fact there has been
a surge in demand again this week.
We believe the price falls are due to hedge funds and banks liquidating
positions and shorting the market. As ever, there is the risk that algo and
high frequency trading (HFT) may be manipulating prices lower despite very
robust physical demand and increasing liquidity issues in the interbank gold
market.
Informed, senior sources at the highest level of the gold
bullion industry have told us that there is “panic” in the inter
bank or institutional gold market. According to the sources one of whom is
from a leading Swiss gold refinery, we are in a “unique
trading climate” that they have never seen before. This is not just due
to Brexit but to “a number of factors” and so is likely to continue even
after the Brexit referendum.
The market is subject to absolutely “unprecedented conditions”
and a degree of illiquidity and “supply issues” not seen even in the
immediate aftermath of September 11th, Lehman Brothers and the height of
the Eurozone crisis.
Refineries and mints are being advised that bullion banks may take the
unprecedented step of “suspending the trading of physical gold.” Premiums
have risen on larger orders creating the situation where spreads are higher
on larger orders. An example of this is that a 1,000 ounce order worth $12.66
million at current prices is trading at a premium of $0.33 per ounce over a
smaller order of 500 ounces.
There is also warnings that stop loss orders above 5,000 ounces may not be
filled at agreed prices and could be filled at much lower prices. In
addition, a number of large liquidity providers in the gold market, such
as Intl FC Stone, have increased margins.
Thus counter intuitively, larger high net worth and institutional orders
are costing more than somewhat smaller relative orders. This has the effect
of discouraging larger buy orders for physical – whether by accident or by
design. “Officialdom” does not want surging gold prices in advance of
the referendum due to the risks that this poses to the financial and monetary
system and therefore prices may be being “capped” prior to the vote tomorrow.
This bodes well for prices in the aftermath of the vote – whether the UK
votes to remain or leave in the EU.
Bullion banks “have been panicking” and advising that soon, they may no
longer be able to quote prices on large gold bar orders. This response is
previously unheard of and indicates the increasing illiquidity in the large
gold bar market due to a recent surge in HNW, UHNW and institutional (wealth
managers, hedge funds, banks etc) demand across the world coupled with already
robust central bank demand.
The increasingly illiquid physical gold market where supply cannot keep up
with demand underlines the importance of owning physical bullion coins and
bars – either in your possession or having direct legal title to your
individual coins and bars. Bullion should be owned in your name or
your company’s name and be stored directly in the safest vaults in the
safest jurisdictions in the world – outside the financial, banking system.
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