I just recently wrote that “2 things will happen:”
1. It will be understood that the central banks have far less gold than they had claimed
2. The true “fractional reserve” nature of the paper gold markets will become common knowledge
I’d like to do a couple of things here, first use a little common sense to show that these will become “conspiracy fact” and then how might the “reaction” be.
“We” conspiracy nuts have long said that physical supply did not and could not meet the current physical demand for nearly 20 years now. We argued that WGC and GFMS demand numbers were always too low and that supply numbers to meet even their too low numbers were fudged with “scrap” used to plug the gap. We argued all along and much more fervently after many central banks turned into buyers that the ONLY places that the supply could have come from were the central banks (particularly the Fed). Using only 3rd grade common sense here, why is it do you suppose that Germany was told 1 year ago that they’d have to wait 8 years to get 20% of their gold back? Was it because as we were “told” that any undertaking “this large” would take many years…or maybe because the gold actually isn’t in the vault anymore? I would ask the question, how has China imported several thousand tons over the last couple of years yet we can’t move 300 tons unless it’s done of 8 years? Does China have “stronger boats” or “more powerful airplanes?” Or is the gold that we are shipping of the “heavier sort?” Yes I know, gold is gold but I never could get the answer correct whenever asked which is heavier, a pound of feathers or a pound of gold.
Then of course we have the “crazy conspiratorial” thought that the gold market is “fractional reserve.” I think that all you need to do is look at the COMEX here. Of course we could look at the LBMA and the volume of “gold traded” but we have already heard from Jeff Christian that this “physical market” trades 99 paper ounces to every 1 real ounce. If you look at the COMEX, the registered inventory has almost been exhausted. After fully accounting for December deliveries there are less than 200,000 ounces available to deliver…looking at the Feb. contract there is still an open interest that represents over 15 million ounces. Is that “fractional reserve” enough for you? OK, so you say that all of these 15 million ounces will not stand for delivery and you’d be correct, but what if another 40 tons stand this year like they did last year? 1.3 million ounces cannot be satisfied by a sub 200,000 ounce inventory.
Here is my point, if central banks (namely the NY FED) have sold major portions of their physical hoards (and that of other nations that they were entrusted with the safekeeping of), did that temporarily add to the “supply?” If the futures and ETF markets are trading pieces of paper that do not and did not fully have gold behind them on a one to one basis did they not also create “fake supply” that affected the price by creating the illusion of more gold available than there really was? Yes I know, the COMEX apologists will say, “But for every seller there is a buyer so what’s the problem?” Using our 3rd grade (but sound) logic, the natural question would be “seller and buyer of what?” Really, what are they trading? And if it is not “really” gold then why should it have any effect on the price of gold? Wouldn’t this divert much of the demand (that thought it was “real demand”) towards something that in reality has nothing at all to do with the “real supply” of gold?
So in the real world for nearly 20 years (10 for the ETF’s) we have had buyers “spending money” on what they thought was real and sellers who knew that the supply was fake and could basically sell as much as they wanted. It’s a wonder that gold’s price is not still $300 per ounce! (It’s not $300 because of the fact that physical buyers even after subtracting those who were fooled has STILL outnumbered the true supply even after central bank “additions” to mine supply).
Now the important part, what does this mean? It means that once the masses figure out that all of this “hokey conspiracy theory” is actually fact, reality will set in like a tornado out of nowhere. What will be the reaction of the 99 “gold investors” who thought they owned gold but find out that they didn’t really? And since this “subset” only represents 1% or at most 2% of ALL investors, what will the other 98 or 99% of the total do? I’ll tell you what…the 99% will absolutely freak out in panic “oh my God, my gold isn’t gold” and the other 98% of the entire investing public will do what they ALWAYS do. They will act as humans (even dogs and horses) by wanting what they can’t have! A mad scramble for anything yellow and shiny will ensue!
I know that someone will e-mail me why the following is incorrect, untrue or faulty logic but please save it because if the number is not “exact” it is somewhere in the “out there” range. Using our 3rd grade logic again (I like doing this because I excelled in the 3rd grade in everything except English), if it is true that 99 out of 100 “gold” investors really do not own gold and this “supposed gold” doesn’t even exist…then shouldn’t the price be 99 times higher (not even factoring in the 98 or 99% who either hate gold, are too afraid of it or cannot even spell it)? Or for rounding simplicity, shouldn’t we just add two “zeroes” to the current price and we’d be pretty close? Are you crazy Holter? $125,000 per ounce?
Seriously, I have said all along that a true price cannot be calculated because we don’t have the denominator OR the numerator. We don’t really know how much gold is actually “left” nor do we know how much future money supply is yet to come. Heck, we didn’t even know until 2 years after the fact that the Fed lent out a “secret” $17 trillion to “save the system.” Is that a fact? It would have been laughed out of town at the time but actually happened yet no one even batted an eye! I know this will disappoint you because I cannot (wouldn’t try) to make any price prediction other than “higher…multiples and multiples higher than we are now” and it will be done in a panic fashion.
Another excellent post Bill. I have to read your articles everyday. Keep up the great work.
thank you Lee.
Well bill the last mania pushed gold to $850.00. We can add another “0” to it and that would be $8500.00. It all depends on if the DOW goes to 80,000 points..LOL! What we have today is a major distortion in asset prices which will make many who cannot count trillions forget about counting and just measure ounces..
There will be a mania because human nature has never changed from the history of mankind. They will make gold the final and ultimate bubble. The manipulation and printing(which are one in the same) will guarantee a market push in the price of gold when the markets “Rollover”. Watch the movie! Only this will be different from 2008, since gold and silver are oversold and the DOW, S&P are overbought, gold will take back its nature and excel as the only major safe asset to own.
1-1 or 2-1 Dow gold ratio? History rhymes many times over.
Well Bill when the Dollar price goes to $0.00 on the COMEX, then there will be a fine line between infinity and $0.00, and we both know that gold will never be worth $0.00 except on the COMEX. So I am with you when you state 2:1, maybe more!
Rite on as always! and I was in about the third grade when the news was talking about the national debt and I asked my dad who do we owe money to and who could possibly be richer than the United States and where did they get the money? And then my dad took a gulp off his beer and said we owe it to our self ! I said that’s the dumbest thing I ever heard of that’s like borrowing from my right pocket and setting fire to the interest and putting the rest in my left pocket this was about 1972
oh to be a little kid again!
I try to explain that gold price and supply is manipulated, to average people with no interest in owning gold. They respond with, “so what?”. Who cares, it’s just a hunk of yellow metal, a “barbarous relic”. Here, we all understand the significance of it, but the average person doesn’t because they don’t understand where money comes from or how the financial system works, they don’t realize that it’s a gigantic 40 year ponzi scheme designed to maintain a facade of prosperity. They’ve been duped by the system and they don’t understand how gold fits in to the picture. The average person will not come around until their confidence in the system is broken and they are forced to acknowledge that it was not what they thought it was. But by then it will be too late. As is always the case with these kinds of things … the sheep will get fleeced.
yes, until we are blue in the face.
@Mark don’t worry, when they come up with a new currency and you need to convert a few ounces, these same goats will be paying record prices to have the metal then. So them being brainwashed is for our gain. I am glad to have the many on here along with Bill and Andy and the others who keep us informed and are willing to share what they know with us. If we were not for them saying hold on, many of us would probably throw in the towel last year. I agree with you about talking until you are blue in the face. I took care of both sheep and goats. Goats are very stubborn and don’t listen or ignore you when you call them. Sheep come home at the slightest bit of danger. We may need to call them Goats and not sheep. A goat also makes plenty of noise when SHTF and they are trapped by the dogs. At that time the dog has already killed a few of them or eaten their kids.
Bill,really enjoy reading your work.I read a lot and your one of my favorites.I have a topic I would like you to comment on.If you already wrote on this subject, sorry I missed it.I would like your opinion on bitcoin.My take is that the central planners realize they are losing the fight with physical gold.I guess my question stems from,after the lbma,comex impold.the folks in the etf’s will be scrambling for physical gold and silver or somewhere else to get out of dollars.I think bitcoin is there new (etf ) to devert money away from physical metal.Your thoughts please.Thanks bill !!!!!!!
yes I have written on Bitcoin and it is in the archives somewhere. I pretty much agree with what you just wrote, it will be a “diversion”.