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Paper Vs. Physical Gold: Picturing The COMEX/SGE Divide
Chinese gold demand, from both individuals and central banks, garnered increasing attention as the gold price rose consistently in the last twelve years. When the gold price declined, many in the West declared the end of gold, but China (along with many other Asian nations) defiantly continued to buy gold and increase their imports.
Questions over the legitimacy and transparency of COMEX and the London Gold markets are now becoming louder, especially as increasing numbers of institutions are keen to know what actually backs those contracts. ‘Paper gold’ is on everyone’s lips.
When it comes to the SGE, there seems to be little concern over the presence of physical gold, given the increasing volumes of activity in the three largest contracts, two of which are available for immediate delivery. Delivery ratios are significantly higher than those on COMEX, showing the far higher of physical participation in this market.
Via The Real Asset Co.
Whilst the gold price is unlikely to be powered by the SGE, as long as the vast volumes of paper gold exist on both COMEX and London, we do believe that the SGE could end up driving the wedge between the paper gold and physical gold market, and therefore disparities in price between what market participants would deem two different products.
As The Real Asset Company notes, Physical gold demand in the most populated country on earth does not seem to be subsiding, yet neither do COMEX and futures volumes generally.
We believe that as increasing numbers of Westerners look to take delivery of their gold from Western exchanges, there will be more pressure on the physical market. China’s primary physical exchange, as we see from delivery data, is the liquidity hub with the best reputation for such demand.
However anecdotal and media reports show that this is an ongoing phenomenon. Unlike investors in the West, Chinese housewives just want physical gold regardless of the price. This is clearly evident in the delivery data on the SGE, unlike in the West where we see gold as an investment which we hope will climb in price, the Chinese see gold as a way to free up devalued cash and place it into a real store of value.
We are watching a fascinating battle play out between this army of Chinese retail buyers and the specs in the West. The future of the gold price is there for the taking.
Source: The Real Asset Co.
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Paper is worthless no matter who issues it.
Tired of gold paper vs phys debate. If you're dumb enough to fall for the hammering their giving gold to sop up your physical, you're never going to survive the coming onslaught anyway.
Another thing is they actualy have to mine physical gold - first quarter it costed $1300 for all-in costs for 25% of all world gold production:
http://seekingalpha.com/article/1543782-the-true-all-in-cost-to-mine-gold-complete-2013-first-quarter-figures
Not sure how much it costs to mine paper gold - how much are keystrokes going for nowadays? I think i'd prefer the real thing
im curious to know how the price of fuel factors into that price.
I hate to say this...but that is exactly the reason to play (paper) gold/silver double/triple long......yesterday...and tomorrow.
[paper] \m/ METAL ON! \m/ ...
#NUGT
With demand for physical gold delivery swamping numerous exchanges and continuing to increase, we see proof that the gold bull is over.
Growing demand for physical metal with limited availability of supply will cause the price to collapse.
Hahahahaha....thanks for the laugh
It's not a joke.
It is a simple fact that when demand for any restricted good increases, the price of that good then collapses.
Low supply, high and increasing demand, prices collapse.
Simple.
Now take gravel. High supply, relatively limited demand. Gravel will go to $20,000 per oz.
You are quite good in understanding 'new normal'.
Pinto: You need a vacation.
http://www.zerohedge.com/news/2012-10-13/gold-giffen-good
Yes, I understand what you mean....Low supply and High Demand equals Low Prices; in contrast, Low Demand and High Supply eqautes to High Prices. Signed, Manipuated Markets and Currency
p.s. fuck you scarcity
Our next lessons:
Central planning works.
The sun rises in the west.
Corruption is good.
We can print money and distort the medium of exchange to improve the economy in real terms.
Oh, for crying out loud..
Everybody knows that gold bullion is a barbarous relic and serves only to enrich certain parties of dubious distinction.
Pinto is a horse .... which looks like it was painted .... with spots ..... horses of only one color .... are referred to as dipped .... like your wife's jewelry !
Maybe the 'Pinto' in 'Pinto Currency' is a way of saying that, like the car of that name, the currency (Fiat, as in the car; odd coincidence!) will have a tendency to go up in flames.
wrong - paper is losing demand (COMEX) - gold is gaining demand (SHANGEX, US mint, etc)
China buying gold concentrate (dirt, rocks).
15,000 tons. Low yield.
But they want it.
http://www.bullionstreet.com/news/china-to-buy-50000-tons-of-gold-concentrate-from-polymetal/4968
yeah there are only 1 of ea. picasso, they must be worthless.
LOL....asinine
I hope this post reflects the fact that your sarcasm is so advanced it makes you look stupid.
Perhaps it says that too many ZH readers can't recognize sarcasm without the quasi-markup "/sarc". Or maybe he was serious and I should be increasing my dosage of mind-altering drugs.
We do get trolls here on ZH, so if you post sarcasm without /s tags then yeah, some people will rightly assume you are out of your damn mind.
Having worked in an underground gold mine I'd say the 3 biggest costs would be explosives, manpower, fuel
How much gold enters the market from tiny little extraction operations that are off the charts? All over the world hundreds of thousands of individual miners and black operations are panning or digging gold from the hills and extracting their few ounces with Mercury. I've seen estimates as high as a million independents at work in South America alone. If they are bringing out 10-20 ounces of gold per miner per year that's a considerable production figure.
Mercury prices are up considerably in the last 90 days!
http://www.metalprices.com/metal/mercury/mercury-99-99-usa
Have to be honest, I haven't ever looked at mercury prices before today. Time to reopen Almaden?
I'm still waiting for the '08 crash prices... Taper = $800 Gold and $8 silver bitches! Save your powder.
SLV was 8 dollars per Toz. but you couldn't find any for less then $16 or so. Save some powder, but don't expect supply to remain intact.
I have to admit, my powder supply wasn't much back in '08, but I was able to pick up a good amount <$10/oz. Gold was available at reasonable premiums, but at the time I was only interested smalls and junk silver. When SHTF, your local bread maker isn't going to be able to make change for even a 1/10 eagle.
now, ive thought about that. so what do you do, what are the possible outcomes?
does the bread-maker essentially become the new "banker"? if you want to eat, you have to make some kind of a deal, or start shooting. keep in mind, someone with no metals or valuables may already have come to that conclusion. or better still, cut loose a lil of that swag, have a store of flour. a well stocked pantry and a double barrel, can see you through some tough times. seriously, for $50 you can get a pretty decent seed assortment.
the whole hunger games side-effects will make people thin in the face, pale, stagger around moaning...like zombies. take away running water, and they are muddy, clothes ripped up from fighting, bloody. tack on a few open wounds on the face and a bad attitude...walla, american zombie.
Hey Strut,
what makes you think your local breadmaker will give you a loaf of bread for 1/10 oz silver or even an oz of gold when SHTF?
Don't delude yourself. He'll be more likely to give you some bread for a bottle of Jack Daniels before he takes your junk silver dime.
Perhaps this is something we really don't know. For example What if the baker was willing to take the silver, knowing that the whiskey seller takes silver in trade?
Someone in this exchange has got a reeeel puurrrdy mowth
I have a few patients like you. lol
I think if there is one economic exchange underpinning civilization it is that between the John and the Lady of the Night. And AFAIK, women tend to be fans of jewellry.
Another case of the guy with all the dough calling the shots?
I bought 50 Sterling silver rounds at $8.00 at my coin shop. What the hell are you talking about? Only Silver Eagles were unavailable for less then $16. Rounds were available daily during the drop.
I got SLW between $10 and $12 at the time. This time I would be REAL surprised (and thankful) to pick it up under $20 (already got a handful at that price a couple weeks back)
Dream on.
It was a pure miracle that it fell as far as it did.
Funny how people get bearish at the bottom.
Back when gold was around $1400 and the gold trolls were trying to run wild on here, I had to point out to them that you "buy low, sell high".
Toilet paper is useful?
Sell paper. Buy physical. Sleep well.
To Jam... Sell paper. Buy physical. Sleep well. Amen.
There, fixed it for you.
Buy paper. Buy physical.
There, fixed it for you.
Toilet paper?
Would you sell a physical ounce of gold for 1 million Monopoly dollars ? So why would you sell a physical ounce of gold for $1300 USD.
Would you sell an American Siver Eagle for $22.15 -- or a whole tube of them for $443? Or two tubes of them for $886? If that's what you had to do to keep the electricity/lights turned on, and your phone connected? Or to avoid eviction? If it was the ONLY way left to put gas in your car, or to replace a flat tire? Or to get anything at all to eat? Or to pay your insurance?
Please stop telling me the "paper price" is unimportant.
Jim
I'm thinking if anyone has put themselves into that situation, it was a bad idea. But I could be wrong.
If you have to sell your precious for paper to do those things you have either planned badly or TPTB have won. My metals are a store of value that I plan to use to purchase despised assets when the sheeple panic into the precious.
I don't want to be offensive, but there is a word for those holders of precious metals, weak hands.
And guess what, grandma's old jewellry has already been sold years ago.
Before this is all over with the absurdity of rehypothication of a physical asset will be there for the world to see the first time somebody tries to take possession of "their" gold because the spread between the paper and physical world is so wide. They will find out quickly that they don't own what they think they own.
Signals for Breakdown on Numerous Fault Lines
Many are the signals of breakdown, in the financial system and the Gold market.
The day is near for release of gold from under the thumb of the criminal bankers. They can no longer operate in the shadows, recently in full view.
The best information coming to my desk indicates that three major Western banks are under constant threat of failure overnight, every night, forcing extraordinary measures to avoid failure. They are Deutshe Bank in Germany, Barclays in London, and Citibank in New York. Judging from the ongoing defense from prosecution and cooperation (flipped) with Interpol and distraction of resources, the most likely bank to die next is Deutsche Bank. They are caught with accounting fraud and outright financial fraud over collateral shell games, pertaining to USTreasury Bonds, other sovereign bonds in Southern Europe, and OTC derivatives linked to FOREX currency contracts.
Deutsche Bank ... a dead man walking.
The contagion that will hit is assured, since these three big banks are all interconnected, their positions intertwined, their fates tied like a common millstone around their necks. When they go down, and they will go down hard, the gaggle of Western financial firms (banks, investment banks, hedge funds, exchanges) will sink together into a sea of red ink, toxic swill, and more than a few orange jumpsuits.
People confuse the price of gold with the gold price. People confuse what is offered as the COMEX gold price as being real.
The bankers indeed slit their own throats on stage in mid-April with the gold price ambush. In June, they castrated themselves with dull blades in full view on stage in the latest ambush. They have accelerated the Gold Supply drainage. They have magnified the Gold Demand worldwide. They have hastened the imminent COMEX & LBMA shutdown most assuredly.
http://news.goldseek.com/GoldenJackass/1373582161.php
so WHEN is the question, and what do you watch for as an indicator. i cant imaging anyone telling the truth at this point, as if they ever did. there will be a period between the deutsche bank fails, and the ensuing contagion.
im asking you to break it down even further. is there a major event that pushes them to the edge? how long do you think we have? i guess im asking you to play Nostradamus.
I am not expert enough to know what the relevant metric(s) may be, but in general, the entities wihich have the best information about the state of the big bank entities are other big bank entities (all that interconnectedness). In my thinking it follows that to get a timing hint about an immanent failure event, to watch the metrics between big banks that indicate their trust, or respect, for each other. I think Lehman, Bear Stearns, and MFGlobal are the nearest precedents for this dynamic.
David Pierre, as long as the banksters make the rules, and currently they do, these banks will not fail. The accounting rules have been changed to mark to model, and money is being supplied as needed, or even wanted. Where needed new laws will be passed to fit the model. As long as the masses of people go along with all this and keep confidence in the system and especially fiat currencies, the game will go on.
The whole 'illiquid or insolvent' problem. The banks are insolvent, just like Japans zombie banks from the 80s. But if they can still access central bank funding, then that means they can delay admitting as much.
The elite do cannibalize their own. The only way they don't do that is if somehow they think the carnage would be too great. In these kinds of situations, TPTB like 'controlled collapse'. It allows them to position themselves better than most, so even though some damage is inevitable they can often re-emerge almost unscathed or even better off. The order that emerges from the chaos isn't only up to them though.
wow, there is roughly 4.5 metric tons of information at that link. a must read!
didnt that just start this year with Germany, Venezuela, Texas, Ecuador?
Sorry everyone,
But this is the same old tale I have heard for more than 40 years.
I don't have a position; i am an observer----it is just the same old 'hope' that what we little people think is 'right' or 'just'---will be confirmed by the big people's action
Do the right thing is only in the movies------hope is eternal---and there is life after death---i don't have any idea of these things, but
it is the same old tale
silly wabbit
Pretend you value something very highly, and you are in desperate need of it. Lets call this thing GOLD, just for convenience. Do you come out and tell people you value it highly, and desperately need it?
Or do you attempt to feign interest, hell, even lowering your offer? (there is an analogy here to the gold smackdown)
So you loudly offer say, $1250 for this GOLD. The sellers of GOLD (weak hands) start to accept this offered price. But then something strange happens. Call it market forces, call it unintended consequences. What happens is, all of a sudden LOTS of people want this GOLD at $1250.
Now you aren't the only buyer, demand has risen, and the price is going up.
The point is, if you are powerful, there are actions you can take, but none of it amounts to any more than a bluff, which the market CAN call you on.
I guess that's one of the up sides about being poor. You don't have to worry about saving your excess.
You have it backwards. The little people's action is what moves the world. The big people can only move the world by using deceit to manipulate the little ones.
/Nonsense. Paper is, at times, indeed of value.
Wiping your backside with a gold bar somehow does not yield the same result.
Try washing it off.
You will get the same result.
You'll be the only person on your block! (Warm it first.)
Idiots and their paper vs. phyz debate. its the same fokin price fools, you can get 1 oz coins for $30 over spot any day of the week regardless of spot price...unless youre shopping at your lcs in bumblefuck, idaho...in which case, youre too stupid to know youre getting ripped off.
(i'll let the morons pay dumb premiums for silver....they deserve the buttfuking they get)
yes i agree 1-2% premium is meaningless. I even buy with 5% premium from time to time.
the price is the same, there is no shortage of physical
I'm paying 17% premium to buy silver in Europe. You seem to know so much. Please enlighten me, let me know where can I get it cheaper.
it is because you have to pay VAT tax on silver in EU (and gold is exempt from VAT in EU).
You know silver is concidered industrial metal
Actually, I don't pay any VAT. I buy from one of those sellers which use pickup delivery.
Again, if you know a cheaper source please let me know. For all I know, the COMEX price is a blatant lie.
Thinking that interest in paper gold translates into physical demand is like saying that every illegal movie and song downloaded would've otherwise resulted in a direct sale at face value.
Paper is paper, and most who trade it, know perfectly well what it represents. They trade exactly for the reason that it's convenient. It's a bet on the movement of price - the bet that can either result in a loss or a gain. Who cares what happens to physical inbetween.
Disregard paper all you want, but unless you barter services directly for gold, or mine it yourself, you are engaged in a paper economy and are working for its benefit rather than yours.
Physical ownership would be a statement against the establishment if you made it yourself, but when you work for the establishment, to earn paper money issued by the establishment, in order to buy gold sold by the establishment, while paying taxes and margins to the very same establishment, so you could sit and admire your shiny piece of metal - you are fooling yourself.
While you were busy working and producing, they took advantage of your labor. Through your spent effort, you fed them, tranposted them, bought some rich cocksucker a yacht a pony for his daughter. You got a shiny medal for your contribution. They got a nice meal and a good nigh sleep.
...
Having said that I do want to add that I own physical, but I'm not bullshitting myself that it's somehow going to save me from anything, or that it's a representation of a shiny middle finger to "the man". It's just a thing, like many other things. It may work out, or it may not, but I've got to live my life today, as oppose to waiting for tomorrow that may never come. PM's win? Great! PM's loose? Lick my wounds and move on.
Julia: It's misrepresentation! It's a lie! If you're going to trade unbacked paper, then that's what it should be called, because it's disconnected from price discovery. IT'S A CON. Lying is the essence of fractional reserve banking. Capital is flowing away from western "markets" because honest investors are sick of the LIES, LIES, LIES.
Julia .... can I lick your wound ?
So you took deposits out of the fractional reserve banking system, but you are adamant TPTB are cool with that? Really?
Paper gold is a bet. like paper oil, paper gas and paper everything. Any IOU being traded is a bet. If you believe going to races and betting on a horse equates to owning one, or that your paper slip somehow relates to the price of the animal, then you need to have your head examined. The whole convenience of betting on a horse is that you don't have to own one to be able to participate.
There is this complaint about there not being enough physical gold in proportion to the paper slips. Well, that's a benefit to ones trading paper. Physical traders complain about deliveries, margins, quality of product. Paper is worry free in relation. There is a little chance of buying a paper IOU for gold and then discovering it was an IOU for a chunk of tungsten. It's merely a document. As long as the next guy plays the same betting game - the paper has value. It may not last forever. At some point the paper may indeed loose value, but that's risk for ya. Convenience comes at a price. You don't buy paper gold as insurance against paper default. You buy it to make a quick buck.
You don't go to races hoping to walk away with a race horse. It's not even an option.
There are people who raise and trade horses - those who invest in animals and profit if their animals win. They are the physical traders. Equating them to crowds in the stands - now that's just stupid. Paper is paper and gold is gold. They're not the same. Both have risks and both have benefits. In the end - neither of the 2 are end product. You'll convert them to eat, pay rent or fill up a car. Then they'll be worth something. Until then, they're both non-essentials. Just things.
all you saying is that you need your savings to live your life today that is why you are more willing to sell your gold.
For others who have already their life settled ok and have extra savings - they put their savings in gold because they see no immediate need for their savings to be spent.
PMs never lose. If gold price falls to $5/oz, that only means that everything else has fallen presipitously as well. Gold's real price (exchange value) never changes. Thats the point of owning gold - its a preservation of value and wealth regardless of its nominal price that is measured in and by fiat.
When gold goes from $1000 USD to $1500 USD all that has changed is the (fatally flawed) unit of account!
There will be some volatility in the ratio of eggs per oz. (currently at about 332 dozen eggs for an oz where I live), or loaves of bread per oz (~600).
There are gains to be made in gold (and silver) though, because of price suppression.
When gold went from $250 to $1900 the price of essentials didn't rise in proportion. When gold went from $1900 to $1200, prices didn't crash by %37 to match its purchasing power. Short term gold does gain and dose loose purchasing power, and by "short" I mean decades. When analyzing gold's performance throughout centuries, it's good to remember that people's lives don't measure in 1000's of years. Short term for gold is quite long term for people. Those who gambled with gold in 70's and 80's might've bought at the peak and held on. If they got a chance to dump at $1900 to reclaim invested purchasing power, they waited for 30+ years to get such opportunity.
Prices of everything rise and fall. Things go between overbought and oversold constantly. Rises are typically graduals, but the falls rapid. Things go up stairs, but down an elevator.
As I've said many times - gold is just a thing. It's not special. It has its own set of risks and benefits. Know what they are and you'll be alright.
>>>
...Chinese housewives just want physical gold regardless of the price.
<<<
If this is true, it is _very_ bearish.
Japanese housewives were the last buyers when the Nikkei peaked...and where is it now, 20+ years later?
Japanese housewives were the last buyers of physical gold when the Nikkei peaked?
Watson makes it sound like its all a distribution scheme to unload the world's gold (in exchange for USD!) on Chinese housewives. Not likely!
People who buy physical as opposed to those who buy paper are entirely two different animals.
The physical buyer understands enough to know that the world of paper finance based on Ponzi schemes, inflation, leverage and fractional reserve banking is precariously balanced to collapse at some point.
The paper buyer, is the speculator who is unconcerned about a collapse of the system or a collapse of the firm who sold him the paper gold. He is just interested in his computer screen showing him a profit for getting in and out.
Each approach has merit but only one is basically safe.
The physical buyer needs patience and nerves of steel.
The paper buyer needs speed and a deep understanding of how the big banks are manipulating outcomes.
"Low supply, high and increasing demand, prices collapse."
Yeah... which is why 22LR is now selling for fifty cents a box.
I loaded up on it yesterday. Bought a truck load.
I was at an estate sale last weekend and got 100 rounds of 22LR for $1. I couldn't believe it.
I would be interested to know if the Chinese actually barter with their Gold or do they just keep it under their mattresses?
It's all fine and good to hold gold as an investment but it's ultimate purpose is to be freely tradable for goods and services.
I just hate to be disagreeable, but it's necessary. Gold as a medium of exchange is not its ultimate purpose. Gold can be used for trade at any time that you choose, if the other party is willing. It can't be used to pay your taxes since (by fiat) that has been closed off by government. Trading/bartering/purchasing can be done with anything, including fiat currency, if the other party is willing. At least that freedom is still available to us... for now. Gold's primary purpose is as a store of value. Which means that it barely moves at all in an ideal world. You don't rip off part of your garage to trade for groceries. Silver, on the other hand, is deal as a currency. Your heart is in the right place, however.
Gold, silver, copper, platinum, etc. are "not" Medium of Exchange (MOE). They are just items of simple barter. Any MOE (commonly referred to as money) is just a "certificate" (usually an accounting entry) signifying "a promise to complete a trade". What is actually being exchanged (via money) is trading promises ... which must ultimately be delivered on ... at which time the MOE is extinguished. To the extent a trading promise is not kept (DEFAULT), the money representing it continues to circulate and dilute value of all other trading promises. Thus, INTEREST, equal to the measured DEFAULT must be collected to reclaim the certificates (reverse accounting entries). Such action,due to the relation INFLATION = DEFAULT - INTEREST which governs all MOEs, yields INFLATION of exactly zero at all times and in all places. No MOE has ever been thusly and properly managed. Thus we have INFLATION (4%/year under Fed MOE management over the last 100 years) and arbitrary declarations of interest rates. When this mis-management is tolerated, the MOE manager is simply a farmer, going through the plant, grow, harvest, plow, repeat cycle continuously ... experiencing obscene profits in the meantime and distroying innumerable traders.
"there is no shortage of physical"
If there's no shortage of physical, then why the 8-10 week delay for delivery from the on-line dealers?
Oh, yeah... and why the $140 premium on a single gold Eagle? Good grief!
One of these days, the US mint will suddenly announce it is shutting down and won't take any more orders.
When that happens, the price WILL go to zero, because there will be no sellers at all, hence no sales.
Look Lenny, once you see that the entire financial system is based on denial of the laws of physics, then it all makes perfect sense.
Carry on.
A couple of observations relevant to the above article from the content of this recent WSJ blog, which relates to among other things the current volume of gold in China and China's influence on the global gold price:
http://blogs.wsj.com/chinarealtime/2013/06/30/gold-standard-china-doesnt-set-it/
"Sun Zhaoxue, president of China National Gold Group Corp., the country’s largest gold producer by output… the average Chinese person “only holds 4.5 gram of gold,” Mr. Sun said. “That is far below an average of 24 grams per person globally…" "
That global average accounts for all above ground gold stock in the world, so presumably the Chinese average accounts for all above ground gold stock in China.
World population: 7.097 billion x 24g = 170,328mt
China population: 1.344 billion x 4.5g = 6,093mt
Regarding the pricing of gold globally, Andrew Wang said: "Without all the restrictions lifted, such as in trade, tax, foreign exchange and currency, China isn’t going to have any pricing power. However, you should know all these are under our own control – that is to say, we choose not to have any impact on global prices"
Of course, should it choose to do so, China could impact global gold prices by participating opaquely in foreign markets, could it not?
he failed to mention and compare average disposable incomes of chinese and globally
Let's remember that currencies should have at least two attributes: A medium of exchange and a store of value.
in the past medium of exchane and store of value were represented by the same physical object but nowadays it is too inconvinient.
we increasingly separate the two, hell we even use different forms of currency for different types of transactions (electronic card and cash)
thousands of years men have toiled for PM's held it hid it killed for it..I guess that history has exhausted man's fixation on that lump of metal..give me your paper, burn your gold if you can.
Chinese housewives buying gold will keep the gold market propped up...lol.
Why is that so funny?
After all, American women stay up watching infomercials and buying useless stuff while brandshing their credit cards.
Poor Indian peasant women do back breaking work in the fields but their arms are full of gold bracelets.
Amercan women have gold parties and sell their gold for some useless fiat with which to buy more junk.
Don't underestimate the Chinese just because Western women have gone stupid with their credit cards and shopping trolleys.
When retail is buying the bubble has already burst....who's left to buy, only peasant women? The big guns came and left.