Tuesday, July 14, 2009
is not equivalent to physical Gold. A recent missive by GATA elaborates on the latest paper Gold scam. There seems to be no end to such scams and no end to the tolerance of investors for believing fake is real/settling for fake in lieu of real.
It is apparently now the case that futures contracts can be settled with ETFs rather than actual metal. This works because Gold has few high volume demand industrial applications and acts to suppress the "real" price of Gold in the marketplace. Gold is money and Gold is savings. Just like a bank deposit is your money until it isn't, so paper Gold is "as good as Gold" until it isn't. But what happens when there are thousands of paper tickets claiming to own the same ounce of physical Gold and 1% of those people ask for their Gold?
Reading items like the linked GATA piece can be frustrating in the short term, but such Gold price suppression schemes are wildly bullish for the longer term. This Gold bull market has a long ways to go. It is not coincidence that the institutions who are short the physical metal in the largest dollar amounts are custodians of the ETFs that may or may not hold any actual physical metal.
But when trust breaks down further, and it will, the paper substitutes for actual Gold will be devalued like any fiat currency in a crisis of confidence. A paper claim on anything is not the same as that thing unless trust runs high. Physical Gold premiums have already increased significantly above the spot price over the past year and will continue to do so until the day the real meltdown occurs. What will trigger the meltdown is a request for actual physical metal from one of the futures' warehouses that is unable to be met.
Suddenly, the market will change and the scramble for actual physical Gold will occur. I don't know when this will happen, but it will before this secular bull market in Gold is over. In the mean time, Gold rests comfortably waiting to assault its all-time highs. Once $1000/ounce becomes the floor rather than the ceiling for the price of Gold in federal reserve fiat notes, I believe the final stage of this Gold bull market will begin. We've got a long way to go in price and time.
And once the game of musical chairs with pieces of paper Gold is over, trust me when I tell you that it won't be retail investors holding paper Gold like the GLD ETF who win. The US Mint, which makes Gold Eagle coins, has made yet another announcement to show how they are looking out for the little guy, however, so don't worry.