Opinion only: Gold markets are up and they are down. Whether they are up or down depends in large part, upon what central banks and large institutional banks want. The “paper market” rules and sets the price. The buyers of physical.... for delivery... gold... are generally “price takers” up in that they must “take” the paper price.
The physical market for coins, 100 oz and even 400 oz bars, is on fire right now. That is why a physical one oz coin commands a $180 per ounce premium over the “paper price.” Most European mints are shut down and the supply of coins and small bars is restricted.
Remember, there is no shortage of gold in the world. Banks have thousands of tonnes. If they want the price to go down, they can do a couple of things.... they could simple sell into supply and perhaps also drag the paper price down. If they want the price to go up, the same thing in reverse. They can also support or lower a country currency price.
There have been a number of factors contributing to the fall in the price mentioned in this thread. All have elements of correctness to them.
Banks and governments don’t want panic now, they do not want a rush to gold that will shatter the average joe’s confidence in the economy. Yes, we have deflation now, but those trillions and trillions we start to work into the economy and perhaps two things will happen.....a severe recession and joblessness for sure, but inflation as well. Then there will be huge demand for the financial security provided by gold and the price will rise, perhaps in dramatic fashion.
I talked with a gold dealer today. He reports he is making three times the number of monthly sales As opposed to four months ago. He also reports that the average buy might be $5000 to maybe $50,000. Now he is processing many orders of $250,000 and on up. But, he has run out of “normal “ coins for sale. This is why there is a premium over spot is way high.
So, I asked what is coming next. He said he did not know.... if the Coronavirus situation is handled well, maybe a modest rise. He said those folks out there wanting to buy $500,000 of gold are still there and will be hungry of gold for quite a spell. Demand for physical is strong.
But.... he agreed that inflation is on the way and some “private heavy hitters” are getting frustrated with lack of delivery.... ok, but what can they do? I was surprised by his answer....He said all it will take (to ignite a price skyrocket) is for some Arab sheik to say he is ready to take delivery of $2 billion of physical..... at $2000 per ounce.... It seems that a trigger like that is what ie required to shake the strangle hold of paper gold prices. Seems that the world has quite a few skittish multi billionaires.
I don’t understand all this. But, it seems to me that economic convulsions are coming..... cash, gold and real estate would seem to do well.
Some folks will say that the “paper gold” vs “physical” gold is a bogus thesis. I don’t hold to that. Seems a paper contract that does not yield delivery is nothing more than a derivative. The paper gold system seems to be like trading derivatives.
We’ll see.....
Last edited by TF49; 03/31/20.
