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Hoarding Of Physical Gold, Voracious Global Demand To Produce Undeliverable Gold Futures, Parabolic Move to $2700-3000/oz
As we've noted several times over the past several weeks, fundamental backdrop of precious metals market remains extremely firm with plethora of global monetary and fiscal issues producing massive tailwinds for both Gold and Silver, and we continue to believe long Precious Metals remains the best bet in all financial markets at this time...what we'd like to add to this thesis now is we believe sometime over the next 6-12 months we will in fact see gold futures become undeliverable as demand for physical gold bullion far outstrips available supply (ie long gold futures holders looking to take delivery at expiration will not be able to take delivery due to insufficient supply)...we believe this scenario will take hold due to significant hoarding of physical gold bullion by literally every type of major market participant from global central banks, hedge funds, endowment funds, investment banks, all the way down to the retail investor which will in our opinion produce a massive supply shortage relative to demand...note when central banks (biggest buyers of precious metals at this time) take delivery of hundreds of tons of physical gold, this supply will not see the light of day for years as central banks are now clearly committed to diversifying out of major fiat currencies (ie this gold investment is not a trade, but a long-term investment)...secondly, with demand for gold and silver remaining extremely high due to ongoing Eurozone sovereign debt issues, potential US credit downgrade, voracious demand out of China as it looks to up its gold allocation of foreign exchange reserves from 1.7% to likely 10% , and most importantly the threat of of continued dollar printing by the Fed (aka QE3) in order to stimulate an economy which has yet to show any signs of achieving sustainable growth, we expect demand for physical gold will significantly outpace supply sometime over the next 6-12 months and produce a major parabolic move in both gold and silver with gold likely to hit $2700-3000/oz, and Silver $60-65/oz...we really see no way around this thesis coming to fruition as we believe large amounts of physical gold continues to be taken off the market every single day by major long-term investors, and moreover we see demand for physical gold continuing to increase at an extremely rapid pace such that prices must invariably go significantly higher from even these elevated levels
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Just thought it was worth noting that gold is a good investment regardless of whether you're optimistic or pessamistic regarding the health of the economy and US government. This is very, very obvious if you just look at historical trending. Starting January 1929 to August 2011, the Dow nominal value is 38x the beginning price. The gold nominal value is 78x the beginning price. Gold isn't just money and a store of value, it's an asset that appreciates at double the rate of stocks. I believe this is because of the steadily declining money multiplier.
http://research.stlouisfed.org/fred2/series/MULT?cid=25
The fact that it is now below 1 is a solid reason why the nominal dollar appreciation of gold will continue to accelerate.
When silver is money, it is worht more, than when it is not money. Most of those historical gold:silver ratios related to both of them being used as money.
Will silver become money soon? Tough call.
It has been getting used up by industry, and there is so little of it above ground, that it may be impractical to use it as money.
The ex-monetary silver supply is now used up, so industrial costs will rise, but that may crimp industrial demand. It's elastic.
It is easy to see silver going up, but hard to see how much.
Of course if does become money it will be worth more in terms of real goods becuase there will be a steep increase in the demand for silver to cover for its new role as money. Its dollar value will cease to be relevant. How many inches are there in an inch? There's one inch per inch... oh wait a minute the unit of measure is the inch so everything is relative to that. If silver is the unit of measure (is money) it no longer makes any sense to try to measure it!
I get the distinct impression that most of even pro-gold ZH readers don't understand the implications here. When the futures market in precious metals collapses, the numerical price of every precious metal will almost immediately be rendered meaningless; because this entails the collapse of a derivatives market which, no matter where and it what specific market it occurs, will necessarily spark a nuclear, chain reaction bonfire in paper currencies worldwide.
Remember, according to the BIS itself (as of more than two years ago) the total value of derivatives sold at that time had reached more than $1.2 quadrillion! Worse, aside from direct cash "bailout" injections, the only way the so-called "banks" have been able to persist since then has been to sell even more derivatives. So when this puppy blows, ALL paper assests will vaporize.
In the aftermath, who cares what gold and silver will be in terms of dollars? I'm confident that you can expect to be able to buy a four-bedroom house for an ounce or two of gold at most, and probably for even much, much less (given varying circumstances) in the ensuing six months of chaos.
If Sprott says triple digits, I will try and take the hit!
By Nicholas Larkin - Aug 1, 2011 11:31 AM CT
http://www.bloomberg.com/news/2011-08-01/gold-coins-selling-out-in-downt...
Where is all this headed?
Anyone catch this story:
Gold Coins Sell Out In Lisbon
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/08/01/bloomberg137...
Yep, saw that,we have MORE though......................LOL
Right now.(meaning for the time being).
TBH, I do not think a CB MAJOR DUMP would get the majority of Physical holders to do anything but ADD.SoI do not see that as a prospect anymore.
And have you all noticed how the premiums on gold coins have been rising over the last few months as well? On APMEX, it is now $90 for one one-ounce gold Eagle! Even Krugerrands and Maple Leafs have premiums in excess of $75 now with the same company, which are proportionately higher than they have been all year.
akak,
You need to shop. Tulving has 1oz GAE for 43 over spot, and Krugs for 12 bucks over spot. ( 20oz minimums )
I doubt gold will go as high as many predict in as short as time as everyone thinks. Once gold disrupts the ponzi, the State will just outlaw owning the stuff and confiscate it. Read your history books. It happens everytime. In the U.S. they WILL pry your gold out of your cold dead hands. You might realize some value from your holdings if you move overseas. I buy/sell it mainly as a trade trade, and have a little if the SHTF in a big way. Food and other life-giving assets are more valuable to me, in most instances.
Is the US going to go pry the gold from every other country as well? I don' think it will be the american investor who thinks paper gold is as good as gold, but the other regions like asia and the mid-east who know that only gold is as good as gold, that pushes the price into oblivian. They will happily take our reprocessed trinkets as we surrender them for worthless dollars. Eventually, enough people around the world will participate in the physical gold market that the western-bastardized wealth asset will be seen as the only easily ownable wealth asset that stands up to the test of fiat.
I agree with you that the world market will remain open for gold, however, the State (U.S., Eu, and proxies) will make it a tough as hell to try to use, sell it, make money off of it, if it threatens to disrupt the ponzi.
Yeah, they will be as effective in that as they are in the "War on Drugs".
Ha, I hope you are correct. The war ond drugs has been a colossal failure, but it sure has left plenty of casualties - plenty of REAL casualties unfortunately.
Got CORN ?
In gold we trust.
In silver we trust.
In reality we trust.
In fiat, fake, fraud, fiction, fantasy, fractional-reserve ponzi-scheme toilet-paper debt we despise.
... unfortunately fiat is our reality.
fiat is maybe not even the problem.... but fiat WITH DEBT ATTACHED TO IT certainly is the epitome of evil!
Definitely. However, you didn't mention "fractional reserve practices", which makes both fiat and debt vastly more harmful and corrupt.
BTW, fiat is not my reality. I always hold close to 100% of my liquid wealth in real, physical gold, silver, platinum, palladium... hidden where nobody else could ever possibly find it. Oh, maybe on a million year time scale. Maybe. And that's the best sort term "solution" (other than overwhelming armed attack on the predators-that-be and predator-class AKA government-elites and banksters).
Why does everyone want so bad, and find themselves groveling to believe that there is actually a market? As if the white knight of erection land is going to come and penetrate the PTB with his mighty wang and deliver freedom to the last vestiges of hope and justice.
O.K., the white knight may be there, but we will all leave this world with bloodied sphincters.
Hook Line and Sphincter
silver 20 to 1?
silver 30 to 1??
ooooooooooooooooooooooooo silver!! ooooooooooooooooooooooooooooooooo!!! I LOVE SILVER!!
Blue HorseShoe LOVE SILVER!!
false choice JW!
http://www.ft.com/cms/s/0/cc350008-5325-11e0-86e6-00144feab49a.html#axzz1KM2n8oYW Iran 300 tonnes of gold from 168.4 1996
New Pan Asian Gold Exchange
http://www.presstv.ir/Program/191483.html
Spot gold.. deliverable.. Renminbi tied to Physical Gold.
WAKE UP!!
How about gold to $55,000?
Read (a lot, very long):
fofoa.blogspot.com
platinum and rhodium bitchez.
platypus and roadkill bitchez...
before I go there.
My finger hasn't been smelling too nice lately - Hook line and Sphincter
This guy is way behind the times. If you scale the average price of gold in the 1980's by the increase in money supply since then, you get roughly $5,000/oz. And that's just putting it where it belongs, not even bubble territory!
1980's gold price $300/oz, M2 money supply $500B. Todays money supply $8000.
That's a 16 fold increase in gold price from $300 to $4,800. Scale the bubble top of $840/oz and you get $13,440/oz. That would be the modern day equivalent of the 1980 bubble. So I guess you shlould sell at $10,000?!
If silver gets to 20:1 then that's $500/oz. These are not crazy numbers, we've already been there in HALF my lifetime. 1600 is cheap guys.
BTW: There are many ways to compute the price of gold given all the money printing of the last 60 years. This one comes from Robin Griffiths interviewed at King World News.
They may not be crazy numbers but they are too low in my opinion.
Scaling gold price highs from the 1980s ignores the fact that global fiat is circling the bowl today, not so in the 1980s.
The US is utterly bankrupt today, not so in the 1980s.
We have a global economy today, not so in the 1980s.
TPTB have been very successful in holding the prices of PMs down while they acquire them, but that game yields diminishing returns. In this day of instant euphoria, is it that much of a stretch of the imagination that panic will ensue when the truth becomes clear?
Another argument is there is just too much money and debt out there to switch to even a bastardized gold standard with just a partial gold backing and still keep gold below five digits. Maybe they can, TPTB are very creative, but when they hold all the gold, what will be their motivation for keeping the price low?
The only physical limit on gold prices that I can see is at what level will it start to destroy industries that use small amounts of it like the electronics industry? At that point, the brakes would have to be placed on gold prices.
Ratio's, historical precedents, technical analysis, fundamentals of supply and demand, as well as mining production capabilities mean little except what your hope allows. As long as the manipulators have the power of fiat belief pushing the current, any price movement is what they want you to see.
Fiat is theoretically infinite. The producers of fiat have got the power of corrupt law and MIC under their control.
Charts are painted with artistic finesse, you believe, they laugh.
You think that the lack of delivery will implode the system? Won't happen. There will be a lot of gnashing of teeth in our neighborhood, guaranteed. The illusion here is that the owner of unsecured physical or paper PM has power. In reality, the counter party holds the cards AND is actually the house. When you think it's going to break apart is when you will discover than those at the top in the global hierarchy will agree to participate with each other, the paper wealthy beneath them will capitulate at the point of a gun in a battered house wife fashion, and the ones at the bottom holding small paper gold positions, small yet recently seized pm bullion vaults at external locations will cry in their soup because they have no political power. Those with physical will benefit, but only in a sublimated way... as the phys is difficult to trade legally (depending on the geographical area), and the reset-to-the-next-currency wealth storage value is set according to the intent of those at the top, while exchange for new representations of the storage of wealth are done within the confines of the secondary system set up for you and I.
Global price controls in the secondary public market baby. Central banks managed by the Anglos do not move physical PM's, nor do they sell or buy physical with fiat to each other. Their transactions are worded and clouded in misleading imagery for us to digest. This realm is strictly an illusory small time picture created for those below the master game. Two systems, two sets of rules, two ways of perceiving.
You believe there is a market!
We've got a long way to go before this horse's back breaks. When and if it does, it is only because its is necessary to re-create a new cyclical ponzi.
Appreciating the illusion a day at a time...Hook Line and Sphincter
394 word sentence. Is this a record for Zero Hedge?
And I agree about the price of Gold going much much higher.
CD,
I resepct your columns, and advice,and your questions.Your opinion please.?
So, in light off ALL of us knowing that it's goinf much ,much higher.............HOW much of one's total net worth(Liquid) should be in GOLD.
Gold is, and always has been the metal f choice for storing wealth.
Silver has had it's days of being prefered over time,but it is not what is HOARDED by investors with real bucks.
The "what percent" question is asked all the time. I always answer it the same way.
Whatever amount allows you to sleep at night. Because if you can't sleep, if your posistion keeps you awake at night, you will do stupid things.
I wish all the stories on ZH were this short! Try reading Dignitive Consonance or whatever nonsense that asshole writes!
That's Mr. Asshole to you asshole. :)
Cognitive Dissonance may be verbose, but at least he is intelligent and makes good arguments and good sense. Try, on the other hand, to read the kneejerkedly and mindlessly pro-status-quo, pro-big-government, Keynesian bullshit vomited out by leo kolonasskiss here on a regular basis --- it is positively mind-numbing in its banal and arrogant cluelessness, and never fails to be both intellectually and morally insulting.
Thank you...........I think. :>)
You're welcome ..... I guess. ;-)
Actually, you do an excellent job in your articles, which are necessarily long given the complex nature of what you tend to write about and discuss in them. I grow impatient with the ADD-afflicted, sound-bite-loving, increasingly shallow and juvenilized Americans of today, who have all the attention span of a fruit fly in heat, and who cannot deal with a single sentence with more than one comma or, God forbid, a semicolon.
"394 word sentence."
No wonder I blacked out for a second reading it out loud!!
"And I agree about the price of Gold going much much higher."
I agree, and yet, most everyone I mention this to looks at me like I told them aliens inhabit my toilet...
I stopped telling my friends and family about gold. No one wants to hear it. And who wants discord in each of our lives?
If something REALLY BAD happens, I have just enough to help my very closest. And that's it.
I think our country is going to need a LOT of help:
1) Our .gov and the EE have long been leading us to disaster
2) The people (that I know) don't know or want to know.
Good luck to us, if we deserve it...
DoChen,
Preparation serves the wise......................
I have/had, the same issue w/close friends, and relatives...............they think I am insane.
I tell them remember what I told you 5-6 yrs ago?,and they say yes.And I say, well it's HERE.So do you not think it prudent to have some INSURANCE?.
Morons. I too have stopped saying a WORD.
Despite the fact that articles like this essentially represent the collapse of the underpinnings of our "civilization", they give me a warm feeling for some reason. IMHO, there is no way silver will be only $65 if/when gold gets to $3K+/oz...
AGREED, 150 TO 200, MOST PEOPLE DONT EVEN HAVE 3000 AND WILL TRADE DOWN TO SOMETHING CHEAPER.
Silver, bitchez!
Gold bitchez!
Sr. MatrixAnalytics - How did you arrive at the $2700-3000 and $60-65 figures?
I take the correlation between gold and the adjusted monetary base pretty seriously. The trend has decoupled drastically since the financial crisis, and gold has a LOT of catching up to do.
http://research.stlouisfed.org/fred2/series/BASE
General rule of thumb, $1000/oz gold = $1 trillion monetary base. Current implied fair value is ~$2,700. I feel very comfortable buying at any price below that implied fair value, particularly in light of the reality that it's very, very unlikely to go down substantially anytime soon (and will likely increase, as QE3 is all but an inevitability at this point). If you feel the need to hedge, GLD puts are correctly priced extremely cheap.
Thanks. I'll keep that in mind.
Gold bitchez!
George Soros told us gold was in a bubble a few months ago and we should be afraid of buying it and he wouldn't steer us wrong. Guys. He's trying to help us. He really cares. I want to please him and sell my gold. He's such a kind oligarch and Central Planner and I love him.