What makes the current sovereign default episode different from previous ones is the uncanny stability and lack of buying of "fiat remote" assets such as gold and silver, and to a lesser extent, digital currency such as bitcoin. Indeed, all throughout the Greek pre-default escalation and ultimately, sovereign bankruptcy to the IMF, it seemed as if there was an absolute aversion to the peak of Exter's inverted pyramid.
What is even more surprising about the lack of any gold price upside is that it is not due to lack of demand. Quite the contrary, because as Bloomberg wrote last week [9], "European investors are increasing purchases of gold as Greece’s turmoil boosts the appeal for an alternative to the euro."
Demand from Greek customers for Sovereign gold coins was double the five-month average in June, the U.K. Royal Mint said in an e-mailed statement. CoinInvest.com, an online retailer, said sales on Saturday and Sunday were the highest since Cyprus limited cash withdrawals in 2013, driven by a jump in German, French and Greek buyers.
Investors are searching for a safe haven after Greece imposed capital controls, closed banks and stopped selling gold coins to the public until at least July 6. Chancellor Angela Merkel on Monday said Germany is still open to negotiations if Greece wants.
“Most of our common gold coins are sold out,” Daniel Marburger, a director of Frankfurt-based CoinInvest.com, said by phone. “When people learned that the Greek banks will be closed, they started to think that it may not be such a bad idea to have some money in gold.”
The bullion dealers themselves are enjoying a jump in sales to retail customers:
GoldCore Ltd., which buys and sells bullion, reported coin and bar demand rose “significantly” on Monday. Sales to U.K. and Ireland today are about three times the average for the past three Mondays, the Dublin-based firm said in an e-mailed statement.
The U.S. Mint has sold 61,500 ounces of American Eagle gold coins this month, the most since January.
BullionVault, which says it operates the largest online physical gold trading platform, reported a jump in sales during the first half of this year, a sign of a broader increase.
However, it is the "paper" gold market where things were most perplexing in recent months. Recall that, as Zero Hedge broke and first reported [10], in the first quarter of the year, or the same time the Syriza government took power, something very dramatic took place in the US derivatives market, where first JPM saw an absolute explosion of its commodity derivative holdings (a broad umbrella which is not broken down further):
[11]
... coupled wih Citi's surge in "precious metals" derivatives which soared from $3.9 billion [12] to $42 billion.
[13]
[14]
But what is most confusing is how even as physical metal demand clearly rose across Europe in the past few months and the price of paper gold actually declined, perhaps facilitated by some "hedged" derivative positions on the short side of precious metals, some bullion dealers have actually found it impossible to survive, and in the last few days at least one major gold bullion dealer, Bullion Direct [15], greeted customers with the following notice on its website:
Bullion Direct has experienced significant transactional delays. To avoid further inconvenience or other adverse consequences to our customers, Bullion Direct is suspending its operations as it attempts to resolve those issues. We intend to keep you informed at this website. Thank you for your patience.
[16]
Just what are "significant transactional delays" and how bad is the physical gold supply-chain if it can put at least one dealer out of business. Another question: is this a solitary failure by gold vendor due to a one-off problem with working capital, or is something more systemic about to be revealed in the gold bullion sales industry?
We look forward to finding out, but in the meantime our advice to buyers of physical precious metals is the same as always: if you purchased it and you can't hold it in your hand, it isn't yours.