Wednesday, August 15, 2018

There is an interesting dichotomy in gold's summer long doldrums as investors selling paper gold, but few are selling their physical gold

For a long time now, and especially since the gold price massacre back in 2011 by the bullion banks, the pricing of the metal has been ruled by the paper markets where exchanges have allowed these banks to short naked contracts at will to manipulate the spot price.  However here in 2018, even as that price has been beaten down throughout the summer thanks in large part to a rising dollar and global liquidity issues, there has actually been very little selling by investors of their physical gold.

"What were seeing this time, and again the paper markets can control the price to a degree, is that physical selling of actual physical gold... we haven't had that capitulation, ie... we haven't had in our company anyone selling us their physical gold and I think that is probably the case worldwide."

"The ounce price has held up pretty well with the quantity of short positions (paper shorts) that are in the market, and the shorts do have to eventually cover, which means that we can account to a degree the upside because we are seeing very little by way of liquidations in the physical gold market." - McAlvaney Weekly Commentary

Besides sentiment for gold being at one of its lowest levels in decades, most investors already simply buy metal positions using the paper markets.  And while they 'think' they own gold by buying futures or shares in an ETF,  in reality they just own a contract claim on gold which few ever make a demand on.  And because of this, paper gold assets like ETF's are one of the first to be liquidated when investors need cash to cover margin calls or other imbalances in their portfolios.

With the ongoing currency crisis in the emerging markets creating growing liquidity problems that have led to a rush into the dollar that is similar to 2008 and 2009, paper gold has become the big loser here in the short term as investors sell off their positions to help cover their more important and dire concerns.  But for those who hold physical, they are not falling prey to the emotion of falling prices and over time will see a massive return in their stacks when sentiment finally changes, and the laws of supply and demand weigh highly in their favor.


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