Tuesday, April 23, 2013

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.


  1. Dave, please look into what France and the U.S. have been doing in Mali and how this country's annual gold mine production coincidently adds-up to ~300 tons over 7 years. Interesting coincidences...

    1. if you look into the ways you actually get Gold out of the iron ore you find your answer. The industry standard is to use Cyanide leaching. Guess what?? The Iron ore is pulled out of the ground and then Cyanide is poured over it. Guess how long the process takes????
      if you guessed 7 years your right. it takes 7 years to recover 80% of gold from iron ore using this method.

  2. With demand for physical so high, why is it that the mining companies have been hit so hard and haven't started to rebound yet?

    1. I think you answered your own question.
      In japan when they started printing money QE gold jumped like crazy to yen.
      In America they live in fear of the same, as it would mean everything is going down a rat whole. So what they have done is used the paper gold market play games like sell short.They also used the media and every tool they have to try force prices down.What you see is the whole paper gold as for what it is, just paper. Its estimated they only have 1 percent gold to paper. Just try to get the gold they wont give it to you. You can sell your paper gold, but real gold is now much higher the spreads even bigger. Now no one trusts or wants it and are dumping it for the real stuff even though they are taking a loss. The mining company's making gold are also hurting as the government play games to keep prices down. This wont last forever.

  3. Elvis has left the building!
    (Public left a long time ago, in 2011, & turned out the light too.)


    The political class set in motion the eventual obliteration of our economic system with the creation of the Federal Reserve in 1913. Placing the fate of the American people in the hands of a powerful cabal of unaccountable greedy wealthy elitist bankers was destined to lead to poverty for the many, riches for the connected crony capitalists, debasement of the currency, endless war, and ultimately the decline and fall of an empire. Ernest Hemingway’s quote from The Sun Also Rises captures the path of our country perfectly:

    “How did you go bankrupt?”
    Two ways. Gradually, then suddenly.”

    The 100 year downward spiral began gradually but has picked up steam in the last sixteen years, as the exponential growth model, built upon ever increasing levels of debt and an ever increasing supply of cheap oil, has proven to be unsustainable and unstable. Those in power are frantically using every tool at their disposal to convince Boobus Americanus they have everything under control and the system is operating normally. The psychotic central bankers, “bought and sold” political class, mega-corporation soulless chief executives and corporate controlled media use propaganda techniques, paid “experts”, talking head “personalities”, captured think tanks, and the willful ignorance of the majority to spin an increasingly dire economic descent as if we are recovering and getting back to normal. Nothing could be further from the truth.


  5. Www.goldsilvervideoinfo.com

  6. One guy says something that sounds right and now everyone's saying paper and physical is diverging. Hence, sorry I do not believe in this "hype".

  7. Wake up Sheeple!!! Do you really want to invest your precious time and money in a system that no longer serves us and is actually killing us on many psychological, emotional, and physical levels? The only we can vote these days is with our time, our thoughts and especially our money. I propose that if you don't trust the current financial system then vote for something outside that system. Physical, tangible, productive assets is where you go when confusion and fear has taken over the collective mind. I propose that we chose to no longer give our time and energy to the Manipulative Mass Media, Manipulated Markets, and Manipulated Political system. Instead invest time in being on the better side of this historic wealth transfer so we are able take action in building a new system based on a True Cost Economics which is sustainable for everyone and everything...Hold steady brothers and sisters when the dust settles will you have more options or less?

  8. So, paper is going to zero and physical will go sky high, is that it?

    1. Ask the good folks in Zimbabwe or Peru or Argentina that question, I am quite sure they will be happy to tell you they would have been thrilled to have owned gold instead of their respective currencies/waste paper.

  9. Dave, know you are monitoring the gold sales in the Shanghai market curious to see what the action has been there since the crash.

    1. this should answer it for you - from John Brimelow's daily gold report:

      UBS says

      “Our physical flows to India are close to the highest levels we’ve seen since 2008, indicating very robust appetite from the region”

      Reuters reports

      “Premiums for gold bars soared to multi-year highs in Asia on Tuesday after a spate of physical buying led to supply constraints, with dealers in top consumer India expecting a surge in imports this month…

      In Mumbai, premiums for gold bars jumped to their highest in two years…"Imports have been phenomenal since April 15…" said Daman Prakash Rathod, director with MNC Bullion, a wholesaler in the country's southern city of Chennai.

      In other parts of Asia, premiums for gold bars rallied to their highest since late 2008 in Singapore and touched an 18-month peak in Hong Kong.”

      "Our physical flows to India are close to the highest levels we’ve seen since 2008, indicating very robust appetite from the region....

      The response of China physical buyers has been very impressive, too... Our flows over the past week indicate demand comparable to the exceptional levels that we saw back in Q1."