Physical Gold Shortage Is Happening Right Now. You Guys Need To Know About This. Let Me Break It Down.
35 2013-08-13 by [deleted]
We are talking about potential financial collapse here. Let me tell you why.
Gold appears to be in short supply right now. I will go into this with evidence and links in a minute, but let me discuss why this is important.
The gold market is not what most people think. There is physical gold (bars, coins etc. a.k.a. bullion) and there is paper gold (ETFs, Futures, Derivatives etc.). There are two important things to understand about the gold market...
The 'spot' (or 'market') price of gold is set in the paper gold market, not the physical gold market; but the price of physical gold follows the 'spot' price.
There is 100 times as much "paper gold" as there is physical gold - so there is nowhere near enough physical gold to satisfy all the gold contracts that are out there right now (think of paper gold as a fiat currency if that helps you to understand).
Here is the problem - gold is now in short supply. This is a problem. Why? Allow me to explain...
Imagine you are a bank called JP Mortem and you have been printing up unsecured gold contracts and selling them. You've been making some good money selling these pieces of paper at the price of gold, and the gold market is pretty steady, so you carry on printing more and more of these contracts. If every one of these contracts had to be redeemed in one go, you could never fulfill your obligations - but that is unlikely to happen as long as the market chugs along as usual. If you have to redeem a contract, you just resell it to someone else - so you don't lose anything... as long as you can still keep selling your paper gold.
But something is happening in the physical gold market. Because you (JP Mortem) have been printing up so many paper gold contracts, the market seems to be oversupplied... and therefore the 'spot' price of gold has come down. This doesn't seem to be a problem on the surface because all those paper contracts that you sold are now worth less, so you will be making a better profit once you redeem them.
But there is a problem looming.
Because the price of gold is set in the paper market, physical gold is now cheaper than it should be... this means that there is now a huge demand for it... especially in China and India. People and central banks alike see physical gold as now being "on sale" and are sucking it up like crazy.
Then something starts to happen that you didn't foresee: Available physical gold is running out (I will provide evidence for this later).
What happens when physical gold starts to run out? The price of physical gold goes up (demand and supply). No amount of paper gold will be able to bring the gold price down once everyone realizes there is hardly any real gold left to buy. This is a problem, because your bank, JP Mortem, is now tied in to a lot of unsecured contracts, promising to pay the holder of the contract the market (or 'spot') price of gold. You are suddenly on the line to pay back a lot more money than you ever expected. Either that, or you have to figure out (with your friends in the government) how to get out of this little predicament
This could play out in various ways... JP Mortem could go bankrupt... the paper gold market could collapse... there could be a massive rush into physical gold, precipitating a partial dollar collapse... there could be massive bailouts to protect JP Mortem... Western central banks could start selling tons and tons of physical gold, just to keep the price down, thus exposing weakness in the global financial system.
It is impossible to say exactly how it will play out exactly - but a shortage in the supply of physical gold is a big deal. It is going to expose the gold market for what it is and there are going to be a lot of unhappy people.
Right now, gold is in short supply. There are various signs that together build a picture that is really quite staggering.
Listen to this guy being interviewed on Bloomberg. At 1.30 onwards he says that his company ordered a shipment of physical gold eight weeks ago, and they are still waiting for it, which means that there is "a huge run on physical" in progress. It is worth listening to the whole interview.
And look at this one JP Morgan is scrambling for physical gold (probably to fulfill orders):
Now let me get just a little technical and tell you about Gold Backwardation. All Backwardation means is that a contract to supply gold in the future is less expensive than to buy gold now. This only ever happens in commodity markets, and is a strong indication that a physical commodity is in short supply (which is exceedingly rare in the gold market). It shows that the market does not trust that future gold orders will be fulfilled. The last two times it happened, there was a huge rally in gold prices... but this time is is happening for way longer than before... the mainstream media are even starting to pick up on it
Here are a few more stories I have come across that strengthen the case that the gold supply is tightening up...
JP Morgan scrambling for physical gold
Comex gold inventories shrinking
Bank Of England releasing physical gold to suppress the price of gold
Of course, it is impossible to say what is going to happen next (you just never know what is going to happen next these days), but things do seem to be getting pretty interesting around here... And you should be aware.
Ron Paul, Alex Jones, Peter Schiff, Mike Maloney, Max Keiser, Gerald Celente and Jim Rogers have been talking about buying gold (and silver) to protect your wealth for a while now. If you are thinking about it, time might be running out.
I have to say, I'm not a financial expert - I'm just a normal guy... but I've been looking into it all and I feel duty-bound to spread the knowledge. Don't follow my advice, but do some research yourself. And let me know what you think.
One more thing - I made a post about gold backwardation a while back, as it was predicted by a World Bank Whistle-Blower called Karen Hudes who used to be a lawyer at The World Bank. You can see that post here: http://www.reddit.com/r/conspiracy/comments/1j1ldy/recent_developments_in_the_gold_market_could_be/
18 comments
5 guitarrr 2013-08-13
Ok while I understand the significance of there being insufficient gold to satisfy the the holders, I have seen this warning several times this year, and still nothing major (?) has happened.
2 [deleted] 2013-08-13
Yep. While the perception is that the market is all okay, nothing is going to happen. Once the physical gold dries up, that will change... the banks / the fed etc. will not be able to hide it.
-7 [deleted] 2013-08-13
Except gold is just a commodity. Like lithium, or corn. It doesn't have any special value. It's not even particularly rare. People have the perception that the market's okay because the market is okay.
5 [deleted] 2013-08-13
Gold is historically always in demand as a sign of wealth and as a store of wealth. If you are saying that it is not as useful as something like copper, then I agree; but it is rare enough for its purpose and the supply of physical gold cannot be inflated artificially (at least, legally)... Which is why gold has invariably remained in demand over the millenia, whilst paper currencies have come and gone.
The market is not okay. If it was okay, we would not have zero percent interest and eighty five billion dollars per month QE.
5 funnymanisi 2013-08-13
I can't believe that people, who seem like rational humans beings, just assume that we haven't been living in the worst economic disaster in human history, larger in scope and length than the Great Depression for the better part of a decade affecting every corner of the globe.
Entire swaths of continents have reverted to Detroit-esque levels, countries are going bankrupt every few semesters, entire industries are disappearing, and nobody seems to notice what is going on. At this rate, we should start detecting a slow decline in world-wide average life expectancy due to economic hardship. This is a serious event in human history that will be studied by our descendants for as long as trade and scarcity exists.
That we just continue to march down the same path without a dramatic shift in policy is one of the great crimes of the 21st century.
-6 [deleted] 2013-08-13
Not at all. More than half of all gold produced is used in consumer goods and industrial applications. The fraction that's bought up by investors as a store of wealth is quite small.
You're confusing "the market" (that is, the market price of gold, the commodity) with "the economy." Yes, the economy is still recovering. But we don't have zero percent interest; the funds rate is a totally normal 0.25%. And from a glance at these comments and your others, I doubt you would know what quantitative easing was if it bit you on the leg.
2 Sabremesh 2013-08-13
You're just making it up as you go along. In fact, why are you commenting in a thread about gold, when it's clear that this is a subject that you know nothing about?
-1 [deleted] 2013-08-13
Um. Except what I said was correct.
But whatever. You don't seem that interested in, you know, things that are correct.
1 TomSwirly 2013-08-13
The Wikipedia claims that it's about 50% in jewelry, 40% in investments, and 10% in industry, though this number is not sourced on the page. Do you have a source for your claim?
1 downtowne 2013-08-13
Yes, you say that gold is not rare. I didn't know that. I'm going to go find some because it is not rare but very expensive.
3 ZoinksJeepster 2013-08-13
A few years ago, silver went Ito "backwardation" and it skyrocketed shortly afterward. Not saying it'll happen, with gold, but def possible. Backwardation is a major indicator of a coming spike IMHO.
2 carneyratchet 2013-08-13
They are shipping gold ore out of the Burra Burra Mine in Ducktown, TN, all the way through Chattanooga to China. Feels like to me one big pinion on a $$rich$$ lubed up gear. This is how understand the market to be as well.
2 TomSwirly 2013-08-13
Good luck unwinding your position! :-D
1 onlysaneman_ 2013-08-13
Good post man, makes sense to me.
One question though - surely the supply of gold has always been pretty much set in stone? So while demand might be up, it's still just moving the same amount of gold around between different people right? So is the issue that the gold is just losing its financial power with the banks?
2 Big_Brain_On_Brad 2013-08-13
More gold is being mined. Most of the world's gold was mined in the last century.
1 Tradias 2013-08-13
This sounds an awful lot like the banking scare that allowed the central bank to be established in the first place. Was anybody else getting that vibe?
1 DaviDunn 2013-08-13
Outlaw private ownership of gold. Then confiscate. Its happened before and it would give the gov't a base for new currency.
2 [deleted] 2013-08-13
Yep. While the perception is that the market is all okay, nothing is going to happen. Once the physical gold dries up, that will change... the banks / the fed etc. will not be able to hide it.