Physical gold vs paper gold: waiting for the dam to break
In this article I will argue that the recent slide in the gold price has generated substantial demand for bullion that will likely bring forward a financial and systemic disaster for both central and bullion banks that has been brewing for a long time. To understand why, we must examine their role and motivations in precious metals markets and assess current ownership of physical gold, while putting investor emotion into its proper context.In the West (by which in this article I broadly mean North America and Europe) the financial community treats gold as an investment. However, of the global pool of gold, which GoldMoney estimates to be about 160,000 tonnes, the amount actually held by western investors in portfolios is a very small fraction of this amount. Furthermore investor behaviour, which in itself accounts for just part of the West’s bullion demand, is sharply at odds with the hoarders’ objectives, which is behind underlying tensions in bullion markets. To compound the problem, analysts, whose focus incorporates portfolio investment theories and assumptions, have very little understanding of the economic case for precious metals, being schooled in modern neo-classical economic theories.
These economic theories, coupled with modern investment analysis when applied to bullion pricing, have failed to understand the growing human desire for protection from monetary instability. The result has for a considerable time been the suppression of bullion prices in capital markets below their natural level of balance set by supply and demand. Furthermore, the value put on precious metals by hoarders in the West has been less than the value to hoarders in other countries, particularly the growing numbers of savers in Asia.
These tensions, if they persist, are bound to contribute to the eventual destruction of paper currencies.
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Central banks bought record amount of gold before collapse
Central banks went on the biggest spending spree in 50 years, buying the most gold since 1964 last year. Their high stockpiles of devalued metal probably makes them the biggest losers of the gold slump.Central banks have bought the most gold since 1964 in 2012 just before the precious metal took a plunge on the stock market, and are now stuck with record losses and a stockpile of devalued gold. The World Gold Council reported central banks added 534.6 metric tons to worldwide reserves, and then the price fell.
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“Central banks are strategic investors, and look at it as the currency of the last resort that lenders will gladly take,” said Rachel Benepe, who helps manage $2.2 billion of assets at the First Eagle Gold Fund in New York. “When there are any big moves, investors get panicked. Nothing has changed from our viewpoint. Gold is a hedge against policy actions, and governments globally are announcing policies that are unproven.”
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Gold Rout for Central Banks Buying Most Since 1964: Commodities
Russia raises gold reserves for 5th month in March-IMF
Gold Retraces Half Of Record Plunge
US Mint Gold Sales Surge To Highest Since 2009
“Panic” For Physical Gold Spreads To UK Where Royal Mint Sales Of Gold Coins Triple
Investors Are Panicking!!! Massive run on gold: JPM’s eligible gold plunged from 402.4K ounces to just 141.6K ounces, a drop of 65% in 24 hours and premiums
We are confident that in the aftermath of our article from last night “Just What Is Going On With The Gold In JPMorgan’s Vault [2]?” in which we showed the absolute devastation of “eligible” (aka commercial) gold warehoused in JPM’s vault just over the Manhattan bedrock at 1 Chase Manhattan Place (and also in the entire Comex vault network in the past month), we were not the only ones checking every five minutes for the Comex gold depository update for April 25 [3]. Moments ago we finally got it, and it’s a doozy. Because in just the past 24 hours, from April 24 to April 25, according to the Comex, JPM’s eligible gold plunged from 402.4K ounces to just 141.6K ounces, a drop of 65% in 24 hours,and the lowest amount of eligible gold held at the vault on record, since its reopening in October 2010!Everyone has seen what a run on the bank looks like. Below is perhaps the best chart of what a “run on the vault” is.
[4]Shortages of physical gold now a global phenomenon
Those who precipitated the recent fall in the gold price may have unleashed a beast that will put future efforts at market manipulation way out of their control. Physical metal is now seemingly becoming key in investors’ minds.They are no longer putting any faith in paper gold and this is being seen in all quarters with reports from virtually all continents of demand exceeding supply of physical metal, and some hefty premiums being applied on sales of gold bullion.
Add to this particularly strong demand from Asia – reports have put the volume of deliveries into the Shanghai exchange so far this year of over 1,000 tonnes as actually exceeding estimated new mine production over the period.
UNPRECEDENTED Shortages Of Ammo, Physical Gold And Physical Silver
All over the United States we are witnessing unprecedented shortages of ammunition, physical gold and physical silver. Recent events have helped fuel a “buying frenzy” that threatens to spiral out of control. Gun shops all over the nation are reporting that they have never seen it this bad, and in many cases any ammo that they are able to get is being sold even before it hits the shelves. The ammo shortage has already become so severe that police departments all over America are saying that they are being told that it is going to take six months to a year to get their orders. In fact, many police departments have begun to trade and barter with one another to get the ammo that they need. Meanwhile, the takedown of paper gold and paper silver has unleashed an avalanche of “panic buying” of physical gold and physical silver all over the planet. In the United States, some dealers are charging premiums of more than 25 percent over the spot price for gold and silver and they are getting it. People are paying these prices even though they are being told that delivery will not happen for a month or two in many cases. Some dealers are feverishly taking as many orders as they can, and they are just hoping that they will be able to get the physical gold and silver to eventually fill those orders. Personally, I have never seen anything like this. If things are this tight now, what is going to happen when the next major financial crisis strikes and people really begin to panic?Stunning & Massive Run On Physical Gold & Silver Continues
“One of my colleagues, who was in Tokyo, just told me there were stunning $500 premiums on one ounce American Gold Eagles, and there were none to be found anywhere in Tokyo. So the Japanese were taking advantage of the price drop to buy seemingly everything available in terms of physical gold in the entire country.
They were dumping their yen and other currency positions and putting massive amounts into physical gold. This was happening as fast as the Japanese could do it, and they did not mind paying quite a premium for physical gold. What we have seen around the world has literally been a run on physical gold. People all over the world are simply turning in their fiat money for physical gold, and silver as well.
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