Trust In the Gold System is Breaking Down

I believe we are now at a very important moment where the price of paper gold is beginning to disconnect from the physical price of gold. Premiums for gold delivery on the Shanghai exchange are now a constant and bullion banks and the COMEX are low on physical inventory for delivery. Although its unlikely the US Fed, BIS or IMF would let a gold exchange completely fail, its likely at some point there will be only cash settlement. Remember, its thought that there are 100 paper ounce representations of gold for every real physical ounce in existence. That means, as I mentioned previously, when the music stops, there will not be enough real gold to deliver. The music may not be abruptly stopping, but I can hear it fading away.

From KWN:

 Kaye:  “Part of the reason we’ve had this smash on gold is because it was very important to the central bankers and to the BIS that gold and silver not be seen as a viable alternative currency.  The reality is that the physical above ground stock of gold only increases at roughly 1% to 2% each year,whereas the amount of digital money that is printed by the Federal Reserve of US dollars greatly exceeds that by a huge factor.

“Now the central bankers are devious but not stupid.  They know that what I just said is true and they know that the market will catch on to that very quickly, so it’s very important for them to manage and suppress the price of gold, and that’s what they have done through the paper market. 

Where the Gold's Going

Santiago Capital, right here in San Francisco has two great presentations on the current gold markets

The first  (10 minutes) reviews concepts familiar to my regular readers, while the second (6 minutes) expands on the first providing additional insight into where physical gold is going.

For newer readers these are a must watch.

Important Andrew Maguire Interview: The Run on the Gold Banks

Listen to it here.

The Run on the Gold Banks Continues

JPM Eligible Gold Plummets By 66% In One Day To Just Over 1 Tonne, Total Gold At Fresh All Time Low

Submitted by Tyler Durden on 07/19/2013 16:31 -0400



For over a month, JPMorgan managed to mysteriously avoid matching up the gold held in its (world's largest) vault with the Comex delivery notice update. However, as of today, that particular can will be kicked no more. Starting yesterday, JPM reported that just under 12,000 ounces of Eligible gold (the same Registered gold that two days earlier saw its warrants detached and convert to eligible) were withdrawn from its warehouse 100 feet below CMP 1. But it was today's move that was the kicker, as a whopping 90,311 ounces of eligible gold were withdrawn, accounting for a massive 66% of the firm's entire inventory of non-Registered gold, and leaving a token 46K ounces, or a little over 1 tonne in JPM's possession. 

On Shanghai, Gold Bifurcation and How Long this Farce Can Continue

Jan Skoyles from The Real Asset Company talks about gold bifurcation, huge deliveries in Shanghai and just how long this Comex cognitive dissonance between paper and physical can continue. Hat top to tfmetals who brought this to my attention.

The conversation starts at twelve minutes into the video.

Rick Rule: On Gold, Hand Holding and Becoming Wealthy

Its been a tough two years for gold and silver investors. Even while the fundamentals for owning them have gotten even better ($85 billion per month of new money creation and annual US budget deficits of $1 Trillion.) the prices have been pummeled lower, almost certainly through intervention of central banks and/or their proxies. If you didn't buy prior to the start of this blog you have almost certainly sustained paper fiat currency losses. That can be frustrating for anyone. But the title of this blog relates to long term wealth preservation not short term trades. Sometimes wealth preservation means avoiding shorter term risks (an overvalued equity market) in favor of longer term investments that are more backed by fundamentals. That means giving up speculative gains for likely, longer term certainty and gains.  Below, Rick Rule, who has been through more market cycles than I explains the wisdom he has acquired over the long term that made him a wealthy investor:

From KWN:

Rule: “You know, Eric, it’s funny because right now I am up in Vancouver, and looking at the despair in the professional investment community and juxtaposing that with the strange elation that I feel has caused me to feel very contemplative.

One of the things that occurs to me is that this is my fourth major market cycle.  The three previous down-cycles that I’ve been through previously were the cause of my personal wealth, and Eric Sprott’s personal wealth....

“It’s interesting that at age 60 I have a lot more patience than I did when I was age 30.  And I think one of the things that’s happening right now is the fact that markets and conditions have caused me to be a 3-to-5-year thinker, and most of the people I compete with, who are 20 years younger than me, have a 2-to-3-week time frame.

And the idea that somebody who has a 2-to-3-week times frame can compete with somebody who has a 3-to-5-year time frame is very problematic.  What Eric and I are trying to do in very crass terms is go from being quite wealthy, to being ludicrously wealthy. 

But the reality is that we are competing with people who are trying to make payments on their 2nd house at Whistler.  In other words we are competing with people who are trying to live rich as opposed to being rich, which constrains them to a very, very short time frame.

Certainly I feel bad about having paid $3 for some stock that is selling at 60 cents, but it’s not the first time I’ve ever done that, and it’s certainly not the last time I am going to do that.  But what I can tell you is that the money I’ve made in my life has come about through the aggressive deployment of capital at times like these. 

This is the case even though I may lose more capital in some of these, but also understanding the incredible increase in value that one gets by maintaining a 2-year, 3-year or a 5-year time frame in markets where your competition is so despairing that they are worried about how they are going to get through month-end.”

Eric King:  “Rick, is this one of the greatest opportunities you’ve ever seen in your entire career?”

Rule:  “I think so.  This is my fourth major downturn, and in the first one I was really terrified because I hadn’t been through it before.  But in the last three downturns I have known in every case that bear markets cause bull markets and that I was going to come out of it doing very well.  I just didn’t know how well or how long it was going to take.

I need to tell you that in each prior instance that I came out of it doing much better than I anticipated, and this time I believe that I am going to do incredibly well coming out of this market.  Your readers need to remember that neither want nor hope are investment techniques, they are emotions.  KWN readers need to think as opposed to wanting or hoping.  And if they do that, and they lengthen their time frames, they will do much, much better with their portfolios as this market turns and heads to the upside.”

Rule also added: “We need to remind ourselves, Eric, that the narrative with regards to precious metals has not changed between 2010 and today.  The only thing that has changed is the price.

In Case You Missed it: The Secret World of Gold

In light of recent events, this CBC documentary is more relevant than ever. Where is the gold?

My regular readers likely already know.