The Paper Precious Metals Market Precariously Close to Diverging From the Physical Market

Jeff Berwick
Activist Post

How is it possible gold goes down $200 in the paper market while there is almost no supply available to buy around the world? Last I checked, dwindling or completely absent supply against steady and increasing demand means higher prices, not sudden price drops. Quite simply, the paper market is being manipulated one way or another.

 Whether it’s nervous speculators or the more likely collusion of banks and the federal government, there can be no mistaking that the deviation in the gold paper and physical markets this last week is a major event for The End Of The Monetary Systems As We Know It.

We can expect very shortly to see in gold what we see now in silver: that is, that the paper spot price has totally diverged from the physical price. Look across the retail and distribution fabric and you see prices for silver coins and bars higher than ever compared to the spot price.

We at TDV called some of our contacts in the US about this, and found that the leading retail price for one Silver Eagle in the US is $5 over spot. This price is often below $3. That marks a rebellion by distributors and retailers against paper markets, as many of them are already hedged in paper markets against the precious metals they own.

Gold is next.  Although the mainstream media attempted to argue against gold, demand for the metal has not been staved-off by the added volatility and propaganda.

As Financial Times wrote, in Gold tumbles to two-year low:

“There is no other way to put gold’s recent sell-off: nasty,” said Joni Teves, precious metals strategist at UBS in London, adding that gold would have to work to “rebuild trust” among investors.

Tom Kendall, precious metals analyst at Credit Suisse said “Once again gold investors are being reminded that the metal is not a very effective hedge against broad-based risk-off moves in the commodity markets.”

The entire thing is a farce based on force.  Also, markets are very intricate and there are innumerable factors impinging on the long- and short-terms trends. What I do know, however, is that the paper markets amplify human emotion and action. How easy is it to sell 1000 ounces of paper gold? Much easier than selling 1000 ounces of physical gold.

A lot of people were on margin and got caught totally offside, including at least one of my friends who used to be worth millions but who stupidly was leveraged in futures and got thrown off the bus last week. That’s another difference between physical and paper: You can’t leverage physical, but too many people are playing in dangerous paper markets right now.

Coordinated Action Against The Gold Price

Not to say that there weren’t more deliberate forces at work. My good friend and near-neighbor in Acapulco, billionaire Hugo Salinas Price recently pointed out that the events of April have all the markings of a coordinated psychological operation or PsyOp using the “paper gold” futures contract. According to Hugo,

The intention of the 4-12 operation was to make gold investors think that their judgment regarding gold as a refuge for savings was mistaken, and to change their behavior accordingly: shun gold purchases.

Not surprisingly Financial Times has led the establishment charge in discrediting gold. As Hugo writes:

Under the main headline, “Investors in rush to dump gold” is a graph of the performance of the gold price from January 3, 2011 to date, showing essentially no gain at all. 

Notice the wording: “Investors….rush….dump gold”.

This is a classic example of PSYOPS.

It was most certainly not “investors” who caused the huge, historic collapse in the price of gold. It was a very few banks, working in cooperation with each other, in a pre-planned fashion. They sold, in huge amounts of tens of billions of dollars, not physical gold, but futures contracts – the infamous “paper gold”. It was the banks who rushed to “dump” the gold and not investors.

A News Agency report published on April 16 informs that Carsten Fritsch, commodities analyst for Commerzbank AG, Germany, says that on Friday, April 12, futures for more than 1,100 tonnes of gold were sold.

That amount of futures is equivalent to about 45% of world gold production. 

It is completely impossible that investors in gold should decide to short such an immense quantity on the same day. The 4-12 operation was a deliberate bomb on the market, cast by the too-big-to-fail (or prosecute) banks, colluded with the Fed and no doubt, the Federal Government. The policy is: if the market is against your policy, bomb the market.

Even if the drop in price really wasn’t due to a coordinated effort by the banks, it still doesn’t represent the actions of actual gold investors whose eagerness to buy gold has rapidly and drastically increased. One contributor on SeekingAlpha.com saw his custom “Gold Enthusiasm” chart spike on April 16, the day after the sell off.

Gold Disappearing from the COMEX

We are not tossing out Hugo’s analysis, however, because a coordinated attack of this sort is exactly the kind of thing you’d expect from the banks, Federal Reserve and the federal government. Rising gold prices put the lie to the shaky existing monetary system which is terminally ill. But all the banks, central bank and federal government managed to do was affect the paper price. The physical reality is quite different. Just look at the collapse in the gold warehouse stores at the COMEX.

The last 90 days have seen the biggest draw down on record of stocks of gold stored at the COMEX. There has been very little reporting about this by those same voices loudly announcing the death of the bull market in gold. But the smart money seems to be removing their gold from COMEX storage. This is because they don’t trust the paper system which misrepresents the real scarcity in above-ground gold in order to drive the price down. Whether a speculator sell off or a coordinated attack, the drop in prices has sent a clear signal: take your possession of your physical gold.

Individual gold investors aren’t the only ones taking note and taking action. The governments of  Germany, Mexico and Venezuala, just to name a few, all realize something is amiss and are seeking repatriation of their gold to their own vaults. Chances are very good that they will never see all their gold returned.

The World Gold Council chalks up the sell off to speculators, too, rather than point the finger at banks and government. But they also recognize that actual investors have not been dissuaded. In fact, it’s just the opposite (emphasis mine):

It has become increasingly clear over the course of the past week that the fall in the gold price was triggered by speculative traders operating in the futures markets. Their short-term view of generating a trading profit is in stark contrast to the views of long term investors in gold, as evidenced by the massive wave of physical gold buying that began over the weekend and accelerated following Monday’s further decline. The surge in gold purchases is spanning markets from India and China to the US, Japan and Europe. Buyers are viewing this as an opportunity to purchase gold at prices not seen in the past couple of years.

This is yet another claim that enthusiasm for gold buying was indeed up following the sell off. Buyers know it’s time to wade in. This is what led TDV Senior Analyst, Ed Bugos, to make this first among his recommendations in the latest edition of the TDV Newsletter:

Don’t waste this opportunity: go out and buy some gold; if it goes lower, buy some more.

In the issue Ed quoted John Brimelow who puts the technical aspect in perspective…

Friday was a 4.88 standard deviation move in the price of gold. For simplicity’s sake let’s call it a five standard deviation move. Statistically we get a five standard deviation move approximately once every 4,776 years. So we should not expect another move like this out of the price of gold until May 17, 6789.

Ed goes into a great detail of analysis for our subscribers in order to make his case. The fact remains, however, that actually getting physical gold simply isn’t that easy anymore. I’ve been receiving communications from would-be gold buyers who have literally been calling suppliers in various countries and only able to gather a few ounces on demand.

A Monumental Event

This is a major event that we’ve been predicting for years as we progress towards The End Of The Monetary System As We Know It (TEOTMSAWKI). The fake paper markets have deviated to its breaking point from the real world supply and demand. If you already own physical, then follow the smart money and take possession and store it privately some place under your own power or with a private facility you can trust. If you can, you should definitely internationalize your gold. Click here to find out more about safely storing your gold internationally in the report “Get Your Gold Out Of Dodge.”

If you do not yet own physical gold, then waste no more time after finishing this article. Get some now. The price action has given you another chance to take a position. There will indeed be many more ups and downs in the continuing bull market, but this may be the rarest kind of good fortune offering you a chance to start piling in. And as Ed advised, if the price drops from here…buy more. Once you do amass some gold, be sure to read “Get Your Gold Out Of Dodge” to internationalize it. (The report is also FREE with your TDV Newsletter subscription which you can learn more about by clicking here.)

Lastly, if you own “paper” gold, like gold futures or the GLD ETF, you may find out the hard way that you really don’t own any gold at all.  And, if supply issues continue you may also find out at around that same time that it will be nearly impossible to buy physical precious metals as the rest of the market begins to realize that we are deep into TEOTMSAWKI.