The Coming Shortage Of Physical Gold That Will Change Everything

The American Dream ^ | July 28th, 2013 | Michael Snyder

[Sopater]

Is the paper gold scam about to be brutally crushed by a crippling shortage of physical gold? If so, what will that do to global financial markets? According to the Reserve Bank of India, “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.” In other words, there is a massive amount of paper out there, but very little actual physical gold to back it up. And right now, we are witnessing voracious hoarding of physical gold all over the globe. This is especially true in Asia. Just see this article and this article. All of this hoarding is putting a tremendous amount of pressure on those that have made all of these “paper promises”, because the truth is that there really isn’t all that much physical gold on the planet. In fact, Warren Buffett once estimated that if all of the gold in the entire world was brought 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.

As the emerging shortage of physical gold becomes increasingly apparent, the massive Ponzi scheme that the bullion banks have been running for decades is going to completely fall apart. The following is what Egon von Greyerz told King World News the other day…

Governments and central banks have, for decades, leased or sold their gold to the bullion banks. So they are very likely to own very little of the 23,000 tons that Western central banks are said to hold.

But now bullion banks also have a problem: They tried to replenish their (physical gold) coffers during the massive manipulative selling that we’ve seen over the last few months in the paper market. Although they took the price down, most of the physical (gold) that was released by selling from ETFs and hedge funds was absorbed by Asia.

So the bullion banks are still massively short of physical gold.

Right now there simply is not enough physical gold out there and the bullion banks and the central planners are starting to panic. One of the individuals that really has his hand on the pulse of what is going on is billionaire Eric Sprott…

We have seen the COMEX inventories decline rapidly. We know that all of the dealer inventory on the COMEX has already been spoken for by delivery notices, so essentially there will be zero (inventory) if they ever make the delivery.

And the central planners (also) went to India and said, ‘Look, you’ve got to do something about all of this gold buying in India.’ So we’ve had ten different steps by the Indian government to try to curb demand — a 2% tax, a 4% tax, a 6% tax, an 8% tax, and a ruling that banks couldn’t lend money for people to buy gold.

They also convinced the Jewelers Association that as of July 1st they couldn’t sell gold bars and coins. Just last week there was a new rule implemented that if you are importing gold you have to prove that a certain amount is being re-exported. We’ve probably had ten or twelve things (restrictions) happen in six months, all of which is a huge attempt to get the second biggest buyer of gold in the world, after China, to decrease consumption because the gold isn’t around.

The central planners have arranged all of these things. I think it’s just been one big scheme to try to get people dissuaded from owning gold and to cause supply to come out. As you mentioned, because of it (central planner actions) we have the gold forward rates (for gold) being negative, backwardation, and inventories plunging, all of which have been manifested because there is a shortage of gold.

Already the emerging shortage of physical gold is starting to cause some very unusual things to happen in the financial markets. A recent article by Reg Howe did a good job of explaining what we have been witnessing lately…

By undercutting normal gold lease rates, these super low interest rates have forced central banks to reduce their lease rates to nonsensical levels in order to prevent gold futures from going into overt backwardation. Recall that GOFO, the gold forward rate, is the interest rate for a given maturity less the lease rate for that maturity, and that a negative GOFO represents backwardation. See Gold Derivatives: GLD and Ass Backwardation (5/24/2010); Gold Derivatives: The Tide Turns (5/25/2009). Passing the argument that widely reported premiums for spot physical delivery represent a form of backwardation, figures from the LBMA have now shown a negative GOFO at the shorter maturities for almost three weeks (July 8 through July 25) due to a surge in lease rates, which still remain below more normal historical levels.

Indeed, this unusual event has attracted considerable attention even from those outside the narrow world of gold. See, e.g., J. Skoyles, Backwardation, negative GOFO and the gold price, The Real Asset Co. (July 24, 2013); M. Kentz, Gold futures hiccup indicates demand outpacing supply, Reuters (July 19, 2013); G. Williams, What If, Things that Make You Go Hmmm, Mauldin Economics (July 15, 2013).

The bottom line is that there is a very serious shortage of physical gold, and as this becomes increasingly apparent to the rest of the world, this is likely to cause a tremendous amount of instability in the financial markets in the months ahead.

For much more on this, please see the recent interview with Alasdair Macleod of goldmoney.com that is posted below…

Right now we are also witnessing tremendous demand for physical silver as well.

For example, the U.S. Mint is going to break the all-time record for July by a very wide margin, and it is being projected that sales of Silver Eagles will likely be above 45 million for the entire year.

And remember, unlike gold, silver is used in thousands of different consumer products. So silver is continually being used up and taken out of the overall global supply.

If silver continues to be used at the current rate, eventually the global supply would be whittled down to almost nothing. And right now, it appears that the industrial demand for silver is rising substantially. For instance, a recent article by David Franklin and David Baker described the massive amount of silver that is going to be required by Japan and China as they move very heavily into solar power over the next few years…

With 5.3 gigawatts of new capacity in Japan in 2013 and up to 30 gigawatts added in China over the next three years, the solar industry could potentially have a big impact in the silver market. Silver is a key component in solar panels due to its unique electrical conductive properties, with approximately 80kg of silver required to generate 1MW of electricity. According to the Silver Institute, one megawatt of solar power requires as much as 2.8 million ounces of silver. China and Japan’s solar projects combined will add up to 27 gigawatts over the next three years. This capacity will require approximately 91 million ounces of silver, which means that China and Japan’s new demand could consume up to 11% of global mine supply – and that’s if the world produces as much silver as it did in 2012.

Silver used in solar panels cannot be recycled and therefore disappears from the world’s silver stockpile. If China and Japan can follow-through with their respective solar programs, the silver market could benefit significantly.

So what does all of this mean for you?

What it means is that while we may see wild fluctuations in the prices of gold and silver over the short-term, the long-term prognosis for both metals is absolutely fantastic.

[Sopater]

Precious metals seem to be “on sale” right now.

[RetiredTexasVet]

“Paper Gold” is on sale now ... real physical gold is another story. One of the biggest scams ever is going to come crashing down as gold owners demand physical delivery of gold. Some dealers have told owners that they would only redeem gold with paper money at the “current” prices.

[American in Israel]

I have noticed that it drops when the American exchanges open and shoots back up on close. Someone is selling a lot of paper.

[Bryanw92]

Who would buy “paper gold”?? That’s about as smart as filling your gas tank with a receipt for 15 gallons of gas or going to the grocery store for empty food boxes.

[Recompennation]

“Warren Buffett once estimated that if all of the gold in the entire world was brought 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”

At an inflated $2000 per ounce all this gold would be worth about 9 trillion dollars

Now just what part of spending problem does Washington not understand?

[Blood of Tyrants]

Yet the price of gold keeps going down.

[Armaggedon]

Gold is good, God is great.

[Armaggedon]

Gold is good, God is great.

[Sopater]

“Paper Gold” is on sale now ... real physical gold is another story.

I would never buy metals on paper. Physical delivery only. However, isn't physical gold/silver also based on the spot price?

[elcid1970]

Real question: why is silver below $20.00 an ounce when it was pushing $40.00 not long ago?

Isn’t silver the best form of physical worth to have in case of SHTF? More fungible, negotiable, etc.

[jdege]

Sounds like a great time to buy copper...

[Sopater]

Gold is good, God is great.

Amen.

If you address as Father the One who impartially judges according to each one's work, conduct yourselves in fear during the time of your stay on earth; knowing that you were not redeemed with perishable things like silver or gold from your futile way of life inherited from your forefathers, but with precious blood, as of a lamb unblemished and spotless, the blood of Christ. (1Pe 1:17-19)

[grania]

who would buy "paper gold"?

People who don't know that's what they're buying. They think that piece of paper means their gold is in a safe place somewhere, guarded, just waiting for them to ask for it.

One has to suspect that the big drive the past few years to get people to sell their unwanted gold jewelry was to increase gold stocks on hand.

[Standing Wolf]

Paper isn't gold? Amazing!

[SpaceBar]

Gold hoarding is historically cyclical. Many nation/states have tried it over the ages to “rule the world”, but it turns out that the best insurance for a nation’s prosperous future lies in an educated and civil population that fosters invention, scientific discovery, intellectual persuit, financial risk, and trade.

[Sopater]

They think that piece of paper means their gold is in a safe place somewhere, guarded, just waiting for them to ask for it.

You mean like a bank? Scary thought... I have a "piece of paper" that tells me how much money have have "safely" deposited in the bank.

[Sopater]

but it turns out that the best insurance for a nation’s prosperous future lies in...

All that, plus the ability to personally defend themselves.

[Bryanw92]

>>You mean like a bank? Scary thought... I have a “piece of paper” that tells me how much money have have “safely” deposited in the bank.

Yeah, like a bank. Except that gold sellers market their gold as a way of securing your wealth using something other than fiat currency and a bank’s spreadsheet.

[Roccus]

..... it turns out that the best insurance for a nation’s prosperous future lies in an educated and civil population that fosters invention, scientific discovery, intellectual persuit, financial risk, and trade.

I remember a country that used to be like that.

[dagogo redux]

The silver market is strange, IMO, but right now I know from my suppliers that “bag silver” (old coins) are almost impossible to find, and the price is accordingly a bit divorced from silver bullion, which is then divorced from the “paper” silver of ETFs. Who knows where all that’s going.

Palladium held up best, IMO, during the most recent sell-off in PMs.

Can we label the ETFs as “Precious Papers”?

[sten]

I noticed that a few years ago

[sten]

all part of the manipulation. now that jpmorgan is done, expect demand to continue... and prices will continue to rise

when the SHTF, gold and silver would be used in exchanges. roughy 1 gold ounce to 40-60 silver ounces (though silver is about 67:1 to gold now... very high)

[The Working Man]

If you can’t touch it, you don’t own it. That applies to Gold as well as Ammo.

So does anyone else think that we are seeing the “perfect storm” about to sweep this whole planet?

[Publius]

It is the paper price of gold that is going down. If you go to a gold dealer, you won't be able to buy at the spot price. He will charge a stiff premium, and the total cost (Spot + Premium) is the true price of physical gold.

[Publius]

True price of physical gold = spot price + dealer premium

[Sirius Lee]

I was disgusted with myself for breaking down at the last moment and voting for Mittens, but in retrospect that almost makes me feel clean in comparison to having pulled the lever for Juan.

If Sarah doesn't cut him loose I will lose all respect for her.

[American in Israel]

I just started looking. Crazy stuff.

[JCBreckenridge]

Yes, so you see the problem. Supply being so much less than demand, with them keeping the price depressed, what would that do for demand?

[layman]

Shortage Of Physical Gold Will Change Everything

Yeah ... no doubt about it .... and then if there is a shortage of diamonds that would REALLY suck ! And ... God forbid ... if there is a shortage of priceless paintings ? ... I don't even want to THINK about it.

[Attention Surplus Disorder]

I would *like* the price of silver and gold to rise, since I own them...but the price does not care what I think. I’ve been hearing this stuff for years, now.

If you’ve traded/watched silver (trades somewhat differently from gold) for many years, you know that it likes “round numbers”. It’s at a major one now, roughly $20. It took maybe a year for silver to rise for $7 to $8, from $8 to $9, etc; IMHO, silver is likely to trade in a $2 range about $20 for maybe 3 years. In other words, it probably goes essentially nowhere; but I believe it has potential to fall to $15-$17 very easily.

I am only a bit more bullish on gold, not much.

As for dealer premiums, they are roughly what they have been, but they are a larger pctage of the underlying’s cost because the spot prices are relatively lowish compared to what they have been. IOW, a $70 premium on an Eagle is a bigger pctage of the spot price at $1200 or $1300 than it was at $1700. You can still buy generic silver for a buck over spot, in fact APMEX is having such a sale right now.

I could not be more neutral on metals than I am at present. I also believe they *could* fall significantly, because they are priced in dollars and the ten year bond is threatening to rise. That, IMO, will make the dollar more valuable and thus metals less valuable. If the TNX rises a lot, it could mangle the stock market and the usual margin calls would smash metals. I doubt gold will go as low as $1000 but I don’t rule it out and I definitely do not rule out $1100. This approaches the cost of production, but the market has shown it can crush things to below those levels should it want to.

[AustinBill]

What does it mean? Obviously that governments will begin to confiscate physical gold. Trade all the paper you want but those who make the rules will take the metal. It's happened before in the U.S. and can happen again here and anywhere.

Gold has certain valuable industrial uses. Beyond that it's just another commodity.

[DManA]

There are stupendous reserves of copper just waiting to be dug up.

[BfloGuy]

The Coming Shortage Of Physical Gold That Will Change Everything

There will be no shortage. Just incredibly high prices.

Ain't capitalism grand?

[jdege]

Copper, and the other industrial metals, have real value, are durable, and are not subject to the sort of speculative nonsense that the precious metals are.

Which makes them something to consider, as a store of value against the possibility of a future currency collapse.

[slouper]

Everybody, buy more GOLD. Now!

For Gods sake, buy more GOLD!

Can I get a refill on my ice tea? Thanks.......

[Sopater]

If you can’t touch it, you don’t own it. That applies to Gold as well as Ammo.

Interesting analogy... couldn't imagine stocking up on "paper ammo". ;-)

[Therapsid]

transfer of resource...redistribution
clear easy to read....You understand that the MINORITIES already save metals.....the mex,chineese bosnians cambodians,arabs,....all will simply alter payment devises...most of their savings are in metal....this will become the biggest tranfer of resource yet...target white middle class demografic.