Buying Gold at ‘Paper Prices’

We spoke yesterday about the incredible set up in COMEX futures where there are 121 paper claims on each physical ounce available.  We also have substantial backwardation yet again (explained here) and we have strong demand across the globe – evidenced by the Chinese demand referenced yesterday (the highest week on record); Indian demand back to ‘pre restriction’ numbers of 2012; the US Mint running out of Silver Eagles (and despite not taking orders for most of July still selling a near record 5.5m of them in that month!) and selling the most gold coins since April 2013; Russia’s central bank continuing its relentless buy up; and here in Australia the Perth Mint recently reporting it is having trouble keeping up with demand (and critically stating mine supply is an issue, where we are the world’s 2^nd biggest producer!).

And YET, we are seeing prices continue to decline.  What seems more and more inevitable is the disconnection of paper and physical markets – played out through higher margins for physical metal and paper defaults.  We saw the former for a while in mid 2013 where similarly on a price drop demand went nuts and refiners and bullion dealers had to pay a premium to get hold of physical metal, plus there were supply delays.  Now please note that was on a price DROP when demand is mainly those few who understand the reasons for owning precious metals and understand it is simply ‘on sale’.  Ask yourself what happens on a price rise when the hoards come piling in?  We may or may not currently be ‘at the bottom’ – no one, but no one knows.  What you could be fairly certain of though is that you will only know afterwards and you simply may either not be able to get the metal, or premiums will jump so substantially that today’s prices look pretty good but you will then have to wait to get it.  We are now only 1 month from the chorus of predictions for a September financial markets crash…