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Paper Vs. Physical Gold: Picturing The COMEX/SGE Divide

Tyler Durden's picture


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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Thu, 07/11/2013 - 22:11 | 3743746 THX 1178
THX 1178's picture

Paper is worthless no matter who issues it.

Thu, 07/11/2013 - 22:18 | 3743770 wolfnipplechips
wolfnipplechips's picture

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.

Thu, 07/11/2013 - 23:10 | 3743894 Spider
Spider's picture

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:


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

Fri, 07/12/2013 - 00:14 | 3744027 Flagit
Flagit's picture

im curious to know how the price of fuel factors into that price.

Fri, 07/12/2013 - 00:35 | 3744057 The Proletariat
The Proletariat's picture

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/ ...



Fri, 07/12/2013 - 00:48 | 3744073 Pinto Currency
Pinto Currency's picture


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.


Fri, 07/12/2013 - 01:06 | 3744094 The Proletariat
The Proletariat's picture

Hahahahaha....thanks for the laugh

Fri, 07/12/2013 - 01:23 | 3744103 Pinto Currency
Pinto Currency's picture


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.


Now take gravel.    High supply, relatively limited demand.  Gravel will go to $20,000 per oz.

Fri, 07/12/2013 - 01:35 | 3744125 debtor of last ...
debtor of last resort's picture

You are quite good in understanding 'new normal'.

Fri, 07/12/2013 - 01:43 | 3744132 Lore
Fri, 07/12/2013 - 01:49 | 3744143 The Proletariat
The Proletariat's picture

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

Fri, 07/12/2013 - 01:57 | 3744148 Pinto Currency
Pinto Currency's picture


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.

Fri, 07/12/2013 - 05:57 | 3744328 Manthong
Manthong's picture

Oh, for crying out loud..

Everybody knows that gold bullion is a barbarous relic and serves only to enrich certain parties of dubious distinction.

Fri, 07/12/2013 - 06:29 | 3744342 Monedas
Monedas's picture

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 !       

Fri, 07/12/2013 - 09:19 | 3744651 GeezerGeek
GeezerGeek's picture

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. 

Fri, 07/12/2013 - 08:46 | 3744531 semperfi
semperfi's picture

wrong - paper is losing demand (COMEX) - gold is gaining demand (SHANGEX, US mint, etc)

Fri, 07/12/2013 - 01:07 | 3744095 Taku
Taku's picture

China buying gold concentrate (dirt, rocks).

15,000 tons. Low yield.

But they want it.


Fri, 07/12/2013 - 02:50 | 3744218 savagegoose
savagegoose's picture

yeah there are only 1 of ea. picasso, they must be worthless.

Fri, 07/12/2013 - 04:20 | 3744287 BeetleBailey
BeetleBailey's picture


Fri, 07/12/2013 - 08:30 | 3744490 nickt1y
nickt1y's picture

I hope this post reflects the fact that your sarcasm is so advanced it makes you look stupid.

Fri, 07/12/2013 - 09:21 | 3744656 GeezerGeek
GeezerGeek's picture

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.

Fri, 07/12/2013 - 10:16 | 3744866 Herd Redirectio...
Herd Redirection Committee's picture

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.

Sat, 07/13/2013 - 17:02 | 3749097 Ausmerican
Ausmerican's picture

Having worked in an underground gold mine I'd say the 3 biggest costs would be explosives, manpower, fuel

Fri, 07/12/2013 - 09:41 | 3744717 Stuck on Zero
Stuck on Zero's picture

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. 


Fri, 07/12/2013 - 11:14 | 3745202 Herd Redirectio...
Herd Redirection Committee's picture

Mercury prices are up considerably in the last 90 days!


Have to be honest, I haven't ever looked at mercury prices before today.  Time to reopen Almaden?

Thu, 07/11/2013 - 22:29 | 3743792 Strut
Strut's picture

I'm still waiting for the '08 crash prices... Taper = $800 Gold and $8 silver bitches! Save your powder.

Thu, 07/11/2013 - 22:32 | 3743801 THX 1178
THX 1178's picture

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.

Thu, 07/11/2013 - 22:51 | 3743854 Strut
Strut's picture

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.

Fri, 07/12/2013 - 00:35 | 3744059 Flagit
Flagit's picture

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.

Fri, 07/12/2013 - 01:44 | 3744138 Troll Magnet
Troll Magnet's picture

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.

Fri, 07/12/2013 - 02:25 | 3744195 TrulyBelieving
TrulyBelieving's picture

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?

Fri, 07/12/2013 - 02:59 | 3744223 Mobius Poop
Mobius Poop's picture

Someone in this exchange has got a reeeel puurrrdy mowth

Fri, 07/12/2013 - 09:07 | 3744608 Doctor of Reality
Doctor of Reality's picture

I have a few patients like you. lol

Fri, 07/12/2013 - 10:19 | 3744877 Herd Redirectio...
Herd Redirection Committee's picture

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.

Fri, 07/12/2013 - 09:25 | 3744665 GeezerGeek
GeezerGeek's picture

Another case of the guy with all the dough calling the shots?

Fri, 07/12/2013 - 04:34 | 3744291 Rothosen
Rothosen's picture

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.

Fri, 07/12/2013 - 10:22 | 3744900 Herd Redirectio...
Herd Redirection Committee's picture

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)

Fri, 07/12/2013 - 00:01 | 3744000 Spitzer
Spitzer's picture

Dream on.

It was a pure miracle that it fell as far as it did.


Funny how people get bearish at the bottom.

Fri, 07/12/2013 - 10:39 | 3745011 Herd Redirectio...
Herd Redirection Committee's picture

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".

Thu, 07/11/2013 - 22:50 | 3743850 Catflappo
Catflappo's picture

Toilet paper is useful?

Thu, 07/11/2013 - 22:19 | 3743772 Jam Akin
Jam Akin's picture

Sell paper.  Buy physical.  Sleep well.

Thu, 07/11/2013 - 22:27 | 3743791 zorba THE GREEK
zorba THE GREEK's picture

To Jam... Sell paper. Buy physical. Sleep well. Amen.

There, fixed it for you.

Fri, 07/12/2013 - 00:43 | 3744066 The Proletariat
The Proletariat's picture

Buy paper. Buy physical.


There, fixed it for you.

Fri, 07/12/2013 - 09:18 | 3744645 mvsjcl
mvsjcl's picture

Toilet paper?

Thu, 07/11/2013 - 22:48 | 3743847 Seasmoke
Seasmoke's picture

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.

Thu, 07/11/2013 - 23:23 | 3743924 Jungle Jim
Jungle Jim's picture

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.


Fri, 07/12/2013 - 01:42 | 3744136 whotookmyalias
whotookmyalias's picture

I'm thinking if anyone has put themselves into that situation, it was a bad idea.  But I could be wrong.

Fri, 07/12/2013 - 08:26 | 3744481 nickt1y
nickt1y's picture

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.

Fri, 07/12/2013 - 10:40 | 3745020 Herd Redirectio...
Herd Redirection Committee's picture

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.

Thu, 07/11/2013 - 23:15 | 3743881 Dr. Engali
Dr. Engali's picture

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.

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