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Record High Demand For Physical Gold Threatens To Break The Back Of The Paper Gold Market

Posted By admin On August 16, 2013 @ 4:02 am In Money Watch | Comments Disabled

Michael Snyder
The American Dream [1]
August 16, 2013

The demand for physical gold is exploding all over the world, and bullion banks are now experiencing a supply crunch that is absolutely unprecedented.  As physical demand continues to rise, the massive Ponzi scheme that the bullion banks have been engaged in is going to become increasingly obvious, and at some point the lack of physical gold is going to break the back of the paper gold market and we are going to see the price of gold go to levels that we have never seen before.  You see, the truth is that the central banks of the world and the bullion banks have made “paper promises” that vastly exceed the amount of actual physical gold in existence.  This kind of scheme works fine if everyone does not come asking for their gold at the same time.  Unfortunately for the ones running this scheme, people are now starting to ask for their gold back and it is causing huge problems.

It started earlier this year when Germany asked for 300 metric tons of their gold [2] which was supposedly being held at the New York Fed.  If the New York Fed really did have as much physical gold as they claim that they do, that request should have been no problem.  Instead, the Germans were told that it would takeseven years [3] to fulfill the request.

At that point, alarm bells started to go off in financial circles all over the planet.  People all over the globe began asking for their gold back, and now this is causing serious stress for the bullion banks.  The following is what Hong Kong hedge fund manager William Kaye told King World News [4] the other day…

There are serious strains in the (gold) system. I’ve never witnessed such a serious strain in my lifetime in terms of the backwardation of gold, and in terms of the lease rates being negative for such an extended period of time. This suggests that there are two forces at work: One is that there are serious strains in the system — that the bullion banks are struggling to come up with the physical gold for spot delivery that the market demands.

Right now the bullion banks are experiencing unprecedented difficulties coming up with the physical gold and physical silver that they are supposed to have.  Evidence of this supply squeeze is starting to pop up all over the place.  Some of this evidence was summarized in a recent article by Jim Willie [5]

It’s so ugly that in the silver market, JPMorgan has not yet satisfied and delivered on the June silver futures contracts!  It’s so ugly that using hidden entities that Andrew Maguire has detected in London, JPM is using hidden entities to hog 90% of the July silver deliveries!   It appears that JPM doesn’t have the silver to meet June delivery, and is trying to replenish their own vaults by taking delivery in London, secretly, to replenish their inventory!   Where are they getting it from?  Maybe the SLV!

The JPM clients have removed between December and June- close to 40,000 kg of gold- thats 40 metric tons.  While JPM’s house account has removed over 40 tons in the same period!  What’s the lesson there?  It appears JPM’s best friends and clients don’t trust them anymore!

My best source (originally a trader with Scotia Mocatta) tells me that the allocated gold account raids have resulted in 40-60,000 tons of gold!   (The US likely doesn’t have any of its reported 8,500 tons left at all!).   Rubin and Clinton might have made $2-$3 trillion leasing and selling the US gold.  Someday the US may have to replenish its gold.

We’ve had other things like ABN Amro’s default [6], andanother small Dutch bank just made the same statement that they’re not going to redeem on gold accounts [7].   Morgan Stanley is stalling on every single metals transfer request.  When it is finally transferred the serial numbers and weights are different than what was documented.  Clearly the broker dealers are going into the market to find the gold, to find supply just in order to meet their daily requirements.

The Brinks’ accounts are going bare and are almost down to zero – these are all problems on the supply side!

At some point the lack of physical gold and the lack of physical silver are going to become glaringly apparent to the general public, and at that point we could see a fundamental shift in the marketplace.  Keith Barron speculated on what the “trigger” for this shift might be during a recent interview with King World News [8]

All I know is that this ‘trigger’ which is going to ignite this move is coming, and it will involve substantial repricing of both gold and silver. One possible trigger may turn out to be a failure of the COMEX. We do know that there is a shortage of physical gold for delivery, and that’s because so much gold is going to Asia right now.

You can see by the price action in the U.S. dollar right now that the Asians are dumping their dollars. But, interestingly, they are also paying a premium to get physical gold right now with no delay in shipment. So there is a loss of faith in the paper gold and silver markets by major participants. It’s almost as if they expect a failure.

Barron is fully convinced that we will eventually see a “breaking” of the COMEX which will shock the world…

I firmly believe there will be a point in the future when this sort of event triggers a run on the COMEX, and more and more entities are going to ask for physical delivery. This will have the effect of breaking the COMEX and creating a failure. When that takes place you will see an explosion in the prices of gold and silver that will literally shock market participants around the world.

And the truth is that this has been a long time in coming.  The bullion banks should never have made so many empty paper promises.

There is only so much physical gold out there.  Warren Buffett once estimated [9]that if all of the gold in the entire world was gathered into one place, it could be formed into a cube that would only be 69 feet long by 69 feet high by 69 feet wide.

That isn’t a whole lot of physical gold.

But there is a massive amount of “paper gold” out there today.  In fact, as I noted recently [10], the Reserve Bank of India says that “the traded amount of ‘paper linked to gold’ exceeds by far the actual supply of physical gold: the volume on the London Bullion Market Association (LBMA) OTC market and the major Futures and Options Exchanges was OVER 92 TIMES that of the underlying Physical Market.”

Did you grasp that?

The reserve bank of India says that there is more than 92 times as much “paper gold” as there is physical gold.

This is why you want to own physical gold.

And right now the global appetite for physical gold is absolutely voracious.

According to CNN [11], consumer demand for physical gold is now at an all-time record high…

Bargain-hunters are snapping up gold jewelry and coins as investors desert the metal and world prices plunge.

Global consumer demand for gold hit its highest level ever in the second quarter, spiking to 1,083 tons, up 53% compared to the same time last year.

Most of that demand came from China and India, where consumers rushed to buy jewelry, coins and gold bars.

In fact, according to the latest World Gold Council Gold Demand Trends report [12], demand for gold bars and gold coins in the second quarter was up 78 percent over the same quarter last year…

Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.

Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500t in a quarter for the first time.  In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewellery demand and bar and coin investment together, global consumer demand totalled 1,083t in the quarter, 53% higher than a year ago.

For the tenth consecutive quarter, central banks were net buyers of gold, purchasing 71t, which reinforces the trend that began in Q1 2011.

All of this physical demand is putting a tremendous amount of pressure on the paper market.

At some point the paper market is going to break.

When that happens, the price of gold is going to go absolutely skyrocketing.


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URLs in this post:

[1] The American Dream: http://endoftheamericandream.com/archives/record-high-demand-for-physical-gold-threatens-to-break-the-back-of-the-paper-gold-market

[2] asked for 300 metric tons of their gold: http://online.wsj.com/article/SB10001424127887323468604578245481704511870.html

[3] seven years: http://www.zerohedge.com/news/2013-01-16/it-will-take-fed-seven-years-deliver-300-tons-german-gold

[4] told King World News: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/8/15_We_Are_Very_Late_In_The_End_Game_-_Its_Close_To_Game_Over.html

[5] by Jim Willie: http://www.silverdoctors.com/jim-willie-everything-points-to-gold/

[6] ABN Amro’s default: http://www.silverdoctors.com/dutch-bank-abn-amro-halts-physical-gold-delivery/

[7] another small Dutch bank just made the same statement that they’re not going to redeem on gold accounts: http://www.silverdoctors.com/second-dutch-bank-to-follow-abn-amro-close-gold-accounts/

[8] during a recent interview with King World News: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/8/8_Entities_Prepare_For_COMEX_Failure_That_Will_Shock_The_World.html

[9] once estimated: http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/

[10] recently: http://endoftheamericandream.com/archives/the-coming-shortage-of-physical-gold-that-will-change-everything

[11] CNN: http://money.cnn.com/2013/08/15/investing/gold-demand-record/index.html?iid=HP_River

[12] World Gold Council Gold Demand Trends report: http://www.gold.org/media/press_releases/archive/2013/08/gdt_q2_2013_pr/

[13] Gold: Physical Demand Vs Paper Supply: http://www.prisonplanet.com/gold-physical-demand-vs-paper-supply.html

[14] Gold at EUR1,000/oz – Strong Physical Demand Leading To Illiquid Conditions: http://www.prisonplanet.com/gold-at-eur1000oz-strong-physical-demand-leading-to-illiquid-conditions.html

[15] 10 Signs The Takedown Of Paper Gold Has Unleashed An Unprecedented Global Run On Physical Gold And Silver: http://www.prisonplanet.com/10-signs-the-takedown-of-paper-gold-has-unleashed-an-unprecedented-global-run-on-physical-gold-and-silver.html

[16] Chavez Nationalizes Venezuela’s Gold Industry, Recalls Hundreds of Tons of Gold Held Abroad, May Cause a Scramble for Physical Gold From JP Morgan and Others: http://www.prisonplanet.com/chavez-nationalizes-venezuelas-gold-industry-recalls-hundreds-of-tons-of-gold-held-abroad-may-cause-a-scramble-for-physical-gold-from-jp-morgan-and-others.html

[17] Demand for gold at an all-time high: http://www.prisonplanet.com/demand-for-gold-at-an-all-time-high.html

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