Somebody Is Messing With The Gold Market

(AFP/Getty Images via @daylife)

“Zero Hour” is what I call the moment when the price of real, physical gold starts to break away from the quoted price on the commodities exchanges. That is, the “physical price” becomes much higher than the “paper price” on CNBC’s ticker. The catalyst would likely be when a major metals exchange defaults on a gold or silver contract, settling in cash, instead of metal.
To be clear, this did not take place when gold’s paper price plunged $150 in only two trading days, Friday, April 12, and Monday, April 15.  What happened after that plunge hints at what the aftermath of Zero Hour would look like. The Chinese Gold and Silver Exchange nearly ran out of bullion on Friday, April 19.  There were reports of a “massive wave of physical gold buying” in Dubai, and monthly sales of U.S. Gold Eagles fell just short of a 26-year high during April.
If you wanted real metal, you paid a substantial premium over the paper price. In silver, these premiums were off the charts. On Thursday, April 25, spot silver was $23.94, but a Silver Eagle from a major online dealer would set you back $29.54, as high as the paper price before the mid-April crash.
Meanwhile, the premium on “junk silver” (U.S. dimes, quarters and half-dollars dated before 1965) sits at four-year highs, according to coin dealer Richard Nachbar. Usually, these coins trade at a small discount to the paper price of silver. Now? As the chart nearby shows, they fetch a 17% premium over spot, and that’s wholesale.

If you’re still skeptical that “Zero Hour” is a real possibility, there’s new and compelling evidence. Sprott Asset Management chief Eric Sprott believes Zero Hour is made inevitable by Western central banks “leasing” their gold to commercial banks at less than 1% a year. The commercial banks then sell that gold and plow the proceeds into higher-earning investments.
“Now,” Sprott writes in a new white paper, “our long search for the ‘smoking gun’ to prove our hypothesis appears to have finally materialized.”
The evidence lies in the monthly trade data from the Census Bureau. The December 2012 report revealed net gold exports of $2.5 billion, almost 50 tonnes. This staggering number prompted Sprott and his team to dig through the figures as far back as they exist, all the way to 1991. The data show that net exports from 1991-2012 totaled 5,504 tonnes.
Here’s the problem: During that same period, U.S. supply mine production and recycling totaled 7,532 tonnes, while demand was 6,517 tonnes. That left only 1,015 tonnes available for export. Where did the other 4,489 tonnes come from?
“The only U.S. seller that would be capable of supplying such an astonishing amount of gold,” says Mr. Sprott, “is the U.S. government, with a reported gold holding of 8,300 tonnes.”
“In this context,” says our friend and Crash Course author Chris Martenson, “the gold slam begins to smell like an operation designed to shake as much gold as possible out of weak hands so that the bullion banks can begin to recover it to square up their accounts. GLD, the gold ETF that so many small investors participate in, is one large, obvious target,” he adds, “as it was sitting on 1,350 tonnes as of January 2013.”  By the end of April, more than 250 tonnes of that total were gone.
“I don’t even look at gold as gold anymore, they securitized it,” CNBC’s voluble Rick Santelli said on March 27, weeks before the big beat-down.
The endgame is getting closer. “What I believe is going to happen, probably in the not too distant future,” says Eric Sprott’s right-hand man John Embry, “is that the pricing mechanism of the gold and silver markets will swing to the physical market, which cannot be manipulated, because, basically, either you’ve got it or you haven’t.”