PAPER vs. PHYSICAL: The Amazing Amount Of Leverage In The Silver Market

https://srsroccoreport.com/paper-vs-physical-the-amazing-amount-of-leverage-in-the-silver-market/

DEATH OF PAPER GOLD & SILVER: The Data Proves It

https://srsroccoreport.com/death-of-paper-gold-silver-the-data-proves-it/

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

http://www.zerohedge.com/news/2013-07-11/paper-vs-physical-gold-picturing-comexsge-divide

Decoupling In Precious Metals Markets

http://www.bullionbullscanada.com/gold-commentary/26158-decoupling-in-precious-metals-markets

Physical vs. Paper: The Shanghai Gold Exchange vs. the COMEX

http://jessescrossroadscafe.blogspot.com.au/2013/06/physical-vs-paper-shanghai-gold.html

...
the COMEX is a paper gold market while the SGE is quite clearly a world class market for physical gold.

Incredibly Important Developments In Many Key Markets

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/16_Incredibly_Important_Developments_In_Many_Key_Markets.html

Gold ETP Holdings Cap Record Drop as $17.9 Billion Wiped Out

Yet, demand for paper gold is down (see previous blog entry about another Bloomberg article reporting soaring demand for physical gold).  It's interesting to note which analysts are bearish on gold and their stated reasons.  One can decipher which firms are part of the anti-gold propaganda machine based on their comments.

http://www.bloomberg.com/news/2013-04-30/gold-etp-holdings-cap-record-drop-wiping-17-9-billion-in-assets.html

Decoupling In Precious Metals Markets

I have blogged numerous times about the decoupling of prices between the paper precious metals markets versus the physical markets.  Folks, it is already here.

http://www.bullionbullscanada.com/gold-commentary/26158-decoupling-in-precious-metals-markets

Owning physical gold and silver vs. paper gold and silver

I get asked this question often, so this video is a short clip on why you want to take physical possession of your gold and silver.  Paper assets include the now-ubiquitous exchange-traded funds (ETF) which trade like stocks.  The most common ones are the GLD and SLV for gold and silver, respectively.  Without going into a long-winded discussion on why they are subject to market manipulation and pose counterparty risk, suffice it to say that they are not 100% backed by the physical metals (they openly admit this in their brochures).  Clients owning more than 10 million shares will be the only ones able to redeem said shares for physical delivery, so everyone else would own legal claim to paper and nothing more, in the event of a run on physical inventory.  In other words, unless you're a billionaire, good luck on getting your gold when the $hit hits the fun.

Other paper gold assets include COMEX futures, options, and other over the counter assets, which are highly speculative and volatile.  Physical gold and silver, on the other hand, are the soundest forms of money--even safer than currencies themselves.  Of course, the Fed, the US Treasury, and bankers would never admit this:  they want participants to have complete faith in the USDollar.  While the dollar remains a viable medium of exchange (for now), historically, it's been a poor store of value.  Hence, we see rising prices on everything we buy, year after year.  A college education used to cost under $1000 annually 30 years ago.  Today, that same education costs $20,000 annually.  Inflation has not been kind to tuition, healthcare, food, or energy prices.  Buy precious metals, and you mitigate rising costs.

As for Kyle Bass, here is some background on him.  He was one of the few money managers who bet on the subprime mortgage market collapsing--before it collapsed.  He and his firms' clients made billions when the real estate market imploded (while everyone else lost trillions in stocks and real estate).  He was featured in Michael Lewis' best-seller The Big Short, if you want to read about him and other investors prescient enough to identify the bubbles in real estate and financial assets, while everybody else was flipping Calfornia real estate and buying shares in banks and GM.

Bass also serves on the board of UTIMCO, the University of Texas and Texas A & M endowment fund, which happens to be the 2nd largest ($28 billion under management), next to Harvard .  In other words, they have a lot of capital to invest, both wisely and prudently.  He's not some lunatic fringe blogger bent on the decline of western civilization.  His opinion carries weight on Wall Street--and on Texas ranches.

http://www.utimco.org/scripts/internet/index.asp

A couple years ago, he initiated UTIMCO's push to convert their GLD shares into $1 billion worth of solid gold bars--precisely due to counterparty risk (as in they may have legal claim to gold via a certificate, but if they don't possess the gold bars, all they own is an empty paper claim).

While I agree with him in principle, I don't believe UTIMCO went far enough.  Their gold bars do exist, but they are stored in HSBC's vaults, the custodian for the GLD ETF.  There have been some grumblings of HSBC manipulating GLD shares and physical inventory, as well as accusations of JPMorgan manipulating the SLV ETF for silver.  It's the ol' fox guarding the hen house syndrome.  If I were UTIMCO, I would go even further, and send a team of Texas Rangers to HSBC's vaults in New York, repatriate and transport those gold bars back to Austin, Texas.  After all, if/when the $hit does hit the fan, possession is 100% ownership--irrespective of legal paper claims.

We have seen every major bank being fined for chicanery and manipulation of markets much bigger than gold and silver (see robosigning of mortgages, implosion of subprime bonds, and LIBOR market).  To suggest that banks aren't tempted to manipulate the precious metals sector is completely naive.

Given that background, watch this short 2-minute video clip.
http://youtu.be/leU1VajD7ug

Put simply, buying gold and silver mitigate risk--they are not speculative trades, unlike what my critics keep droning.  In fact, I would turn it around and insist that those who don't possess precious metals are the speculators, as they have 100% faith in the fiat dollar, which is by definition, not backed by anything tangible--except the US Treasury's ability to tax its citizens and private entities.  Even entrenched Keynesian economists admit this: 

“How long can the world’s biggest borrower remain the world’s biggest power?”

  - Lawrence Summers, former US Treasury Secretary

And trust in a fiat paper currency is a speculation that has a 100% track record of failing over time.  The only question is when, not if.  This includes all dollar-denominated assets, whether they be stocks, bonds, or to a certain extent, even real estate.  In other words, gold and silver aren't just financial assets, or even merely commodities.  They are money.  Money that has been good money for 6000 years.

And I end with this oft-quoted quip from JPMorgan himself, the architect of the Federal Reserve Bank, which has an understandably antagonistic stance against gold.  But in a rare moment of truth, testified this before Congress:

"Gold is money.  Everything else is credit." - JP Morgan, 1912

Remember:  don't trade gold and silver.  Accumulate.  And BTFD.

Paper vs. Physical Silver Prices

With silver prices plummeting at the COMEX, the price of physical silver hasn't dropped as much, creating a huge premium for physical bullion over spot price.  This is what silver bugs have predicting, as physical shortages don't follow the price manipulation of the paper markets.

Having said that, silver's stratospheric prices have encouraged scrap supply to come on-line.  Hence, prices for physical bullion (and coins) should drop relative to the COMEX futures prices over the next several weeks, shrinking the current premium over spot.  A period of consolidation to digest the incoming scrap supply is in order, with silver trading within a range, setting up for its next move above huge resistance at $50.  If it holds above the nominal all-time high, it's onward and upward with no meaningful resistance above $50.  Silver would then merely catch up to gold's record-breaking bull market.

See disclaimers in the side bar.

Disclosure:  long silver mining shares.

Ayn Rand quote

"Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’
–Ayn Rand

Proof of gold price suppression

http://www.zerohedge.com/sites/default/files/Proof%20of%20Gold%20Price%20Suppresion.pdf

That suppression comes from trading on a net basis 45 ounces of gold for every ounce of real gold. In other words 44 ounces of paper gold are traded for each ounce of physical gold. This bogus increase in gold supply distorts the price such that it does not move in lock step with M3 but instead it moves in lock step with the amount of paper gold that is created out of thin air.

Each 44 ozs of paper gold are only backed by 1 oz of real gold but if holders of paper gold demand real gold then each 44 ozs of paper gold will need to be met with 44 ozs of physical gold and not just with one ounce; this will cause a run on the bullion banks. The price will increase and its final limit will be the price related to only real physical gold.

Conclusions

The inescapable conclusions are:

1) The gold price is suppressed through fractional reserve bullion banking

2) The gold market is selling on average 45 ounces of gold for every one ounce of real physical gold via “unallocated gold” (fractional reserve bullion banking). In other words the gold market is backed by only 2.3% gold

3) The true price of physical gold is currently around $54,000/oz if fractional reserve bullion banking did not exist. In the presence of fractional reserve banking with 2.3% gold backing the market price of “gold” is reduced to $1200/oz

4) The US dollar has a purchasing power that is 45 times over valued

5) The way to end gold price suppression is for investors to ensure they have allocated physical bullion preferably held outside of the bullion banking system

The Trade of the Century

The sick joke of the Gold cartel is that whether you hold dollars or unallocated gold you only have 2.3% of gold backing! However, the trade of the century is to buy actual physical metal with your dollars, or if you have unallocated gold to demand physical delivery. In this way you can trade something with 2.3% gold backing for an investment that is 100% gold.