Is This The End Game For Paper Gold/Silver?

The real market in gold/silver is what is going on in the markets where physical delivery is REQUIRED.  That would be China, India, Russia, Middle East and the U.S. retail minted coin market  - The Golden Truth, April 22, 2013

To go along with my statement above, I find it interesting that the United States' is going to take 7 years to deliver 300 tonnes of gold back to Germany.  Seven years.  I find it even more interesting that not many people have scrutinized this situation.  After all, it took Venezuela only about 4 months to get 200 tonnes of its gold repatriated from London and Switzerland.  Hugo Chavez may be remembered by many as a crackpot, but I have a feeling the world will soon understand why one of his last moves before he died may have been his most brilliant.  After all, Venezuela now has possession of its foreign-stored gold - Germany does not.

Something else that has been extraordinarily overlooked, or intentionally ignored by the media, is the fact that about 80% of the recent price hit in gold/silver has occurred during Comex trading hours, after the physical buying markets in the east (China, Russia, India, et al) have gone to sleep or home for the weekend.  Please note:  the Comex is a paper trading market.  The Comex may have enough metal to settle about 5% of the entire open interest of gold and silver, if the entities long the paper contracts decided to stand for delivery.  Typically less than 1% stand for delivery each delivery month.

So when you hear accounts that 100's of tonnes of "gold" were dumped on the Comex market last Monday, please understand and know that this was "gold" as represented by a paper Comex gold futures contract.  On the Comex gold grows on trees - everywhere else in the world that wants to own gold, physical gold has to be delivered.

And while that thrift shop mannequin some call "Attorney General Eric Holder" will never require that the big banks which control Comex explain why a paper bomb representing 100's of tonnes of paper gold was dropped on the Comex, the rest of the world - including the thousands in this country trying to take advantage of the price drop by buying U.S. minted silver eagles - either can not actually buy phsyical gold/silver for delivery or have to pay substantial premiums over the spot price in order to get something delivered.   Go ahead, call your local coin dealer and ask them to sell you some 1 oz. silver eagles.  You'll either hear "we're out" or you'll be offered something at around $7-8 over the current spot.  Note that the price where you can buy silver eagles - silver eagles that you can take home with you as opposed to rely on some counterparty for delivery - will cost you about the same price as it would have before the take down in the metals this past week.

Even more significantly are the reports from around the world of precious metals counterparties failing to deliver physical metal.  It started a couple weeks ago - and not coincidentally right before the price hit started - when big Dutch bank ABN/AMRO notified its clients who had invested in a "gold bullion" account that the bank would no longer make physical delivery of the gold that was supposed to be in the account and that all accounts would be settled in cash:  LINK

This morning we woke up to an interview with  Jim Sinclair, who reported that  "a person that I know with significant deposits in one of the primary Swiss banks, in allocated gold, wanted to take out his gold and was just refused on the basis of directives from the central bank. They told him the amount was in excess of 200,000 Swiss francs and the central bank had instructed them not to do it because it has to do with anti-terrorism and anti-money laundering precautions"  LINK.   Sorry, that excuse does not hold water.

As you can see, and as originally predicted by GATA, the purveyors of paper gold/silver are now having trouble delivering physical gold/silver at the stated spot price.  Where is it you might ask?  Look to China (and other eastern hemisphere gold buying countries:   "Asia is witnessing one of the strongest waves of physical gold buying in 30 years, with bargain hunters using the drop in prices to secure jewellery and gold bars." (Financial Times).

In the aftermath of last week's paper price smash, demand for gold in the markets in the world that REQUIRE physical delivery has gone parabolic.  I could link dozens of reports from Reuters, the Indian Economic Times, the Financial Times, etc, but you can google it if you are interested.  And what I do know for sure is that, ultimately, physical delivery on the Comex is not required.  There's a force majeur clause in Comex contracts that states contracts can be settled in cash if necessary.

I can recall getting on the phone with my business partner last Monday and the first thing he said was "this may well be the first stage of the end game for paper gold."  Since then, several highly respected bullion market professionals have made similar comments.   The crux of the problem for the Too Big To Fail/Prosecute Banks is that the amount of paper gold outstanding in the world - including OTC derivatives - is somewhere between 50 and 100 times amount of actual physical gold/silver that can be delivered.  If enough counterparties stand for delivery, the global physical bullion market will freeze up - prices will go beyond parabolic.

This brings me back to the issue of why the U.S. will require seven years - at least - to return 300 of the 1800 tonnes of German gold being held - allegedly - in the basement of the NY Fed.  300 tonnes.  Supposedly 100's of tonnes were sold on Monday.  GLD has liquidated several hundred tonnes since January.  And yet, the U.S. can't produce Germany's gold on demand.

I'll leave off with a comment from a recent interview with Kyle Bass - manager of the Texas State Teachers retirement fund - who recently took physical delivery of roughly 19 tonnes of gold bullion being held on behalf of the pension fund:

Open interest in gold futures and options traded on the Comex typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand.  If you own a paper contract where they can only deliver you 10 cents on the dollar or less, you should probably convert it to physical,” said Bass.  LINK

The average U.S. investor is starting to understand the difference between buying gold/silver for physical delivery and owning a paper surrogate like GLD or SLV.  That would explain why the recent price take down stimulated an unprecedented amount of demand and shortages for U.S. mint 1 oz silver eagles and other silver products.   It also means that the end game for paper derivative gold and silver has started and the price take down on the Comex we just witnessed is one giant bluff by bullion banks who have nothing in their hand but crappy paper cards.