GOLD & SILVER: The metal v paper discrepancy now lacks any credibility

The Slog  -

For nearly three years, The Slog has been saying the tracker v physical precious metals price misfit is ridiculous. Now it is insane…and offering solid reasons why last week’s gold collapse was no collapse at all.

I spend a fair amount of time reading about gold, and even more thinking about it. That’s because, despite all the palpitating craziness of last week, my common sense (and nous about anthropology) keeps repeating over and over that precious metals are like properties: they are ultimately worth what real people will pay – not what some mendacious arse with an agenda says they’re worth. Even if everyone from estate agents to Fed Reserve goons via landlords and Chancellors say “It’s worth this”, ignore them and ask the market. This is the acid test that usually roots out the liars from the information providers.

Eighteen months ago – as the tracker price of gold finally, and grudgingly, got up to around $1785 – I still knew the price should really be closer to $3000 based on the economic and fiscal fundamentals in play. I sold the lot, and vowed never to buy paper again: but the clincher for me at that time was a self-conducted telephone survey I did among gold experts and retail sellers in the US, South Africa, the UK, and three EU countries. The smallest premium over the ‘tracker’ price that day was 10%; more often it was closer to 15%. And whereas the 60-day picture on paper suggested a waning interest in the metal, every last retailer could only offer me a rationed amount of physical: demand, they told me, was through the roof.

I am a marketing man by discipline. Free markets just do not behave like that.

Over the weekend, I repeated the exercise in the light of the previous week’s market trauma. Not only am I now convinced that the entire price collapse was staged, it is also my considered view that I was too narrow last week in seeing this as a central-bank grab for cheap gold. Some of my change of heart is a conviction that I misread signs: but most of it, again, is based on talking to experts and dealers, then looking around on the Net for like minds who’d garnered evidence I hadn’t come across yet. It is on exercises like these that, to be blunt, the internet becomes a strategist’s wet dream.

First things first. My qualitative sample was unequivocal in its view of last week’s price falls: in terms of physical in the real world yes, there had been selling: but it felt unnatural. And the premiums quoted to me now were over 25% above the paper price. Yet again, nobody had tons of the stuff for sale: rather than muck about with minnow buyers, quite a few of them had placed a minimum purchase quantity of £1,000 in value. Not one of the respondents saw the market as in crash mode: all of them saw it as manipulated…although a variety of theories were offered as to how and why.

Secondly, let’s look at some of the signals that preceded it. As I reported nine days ago, central banks had been buying gold like the clappers for the previous year at least. But in the last part of Q1 this year, massive amounts of physical were removed from the COMEX warehouses – the most ever in recorded history. Q-end removal isn’t that unusual, but it is on that scale. My first thought was that it had been removed prior to a strategic gold dump: and when that duly happened, I smugly thought “Yup, I was right”. But I wasn’t: I’m now sure that the removal was based on owner doubt – ie, an inability any longer to trust any bank ‘looking after’ anything of value.

I think this idea germinated for various reasons: the slowness of the US Fed in coming up with Germany’s gold, the stealing of depositor money in Cyprus, the revelation that most developed nations also had larceny plans, and then the jerk Djisselbloem’s slip of the tongue about ‘the template’ for future bailins around Europe. All this understandably made the gold-owning franchise nervous. The trust in this world has, let’s face it, gone: and in financial markets, trust and confidence are everything.

About four hours ago, I found this piece at Zero Hedge, and I’m now fairly sure that far from being a signal foretelling manipulation, the COMEX withdrawals were a signal for the Treasuries and Sovereigns of the West: and what they said to Those in Charge was, “If we don’t do something and fast here, there’ll be a gold run and it will blow the whistle on just how little gold we’ve actually got”.

The piece linked above by JS Kim is a must read. In it, the author asserts that:

‘The Obama administration called a meeting of the following 15 bankers just one day prior to the start of the now infamous banker gold and silver raid:

Lloyd Blankfein, Chairman and CEO Goldman Sachs

Jacques Brand, CEO Deutsche Bank

Michael Corbat, Chief Executive Officer Citigroup

Jamie Dimon, Chairman, CEO and President J.P. Morgan Chase

Sergio Ermotti, CEO UBS

James Gorman, Chairman and CEO Morgan Stanley

Gerald Hassell, Chairman and CEO Bank of New York Mellon Corporation

Jay Hooley, Chairman, President and CEO State Street Corporation

Abby Johnson, President, Fidelity Financial Services, Fidelity Investments.

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