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I wrote as far back as 2007 that the metals “markets” would become 2 tiered.  There would be 2 prices, the paper market and the real physical market.  We may be at the beginnings of this event becoming reality.  Particularly in silver this is already the case though it did happen back in 2008 and the 2 markets eventually converged again.  The longer that the current divergence where paper “prices” are lower than physical, the higher the likelihood that the permanent decoupling is among us.

I said way back in 2007 that the signs for a default in the paper markets would include the outright sales of the ETF GLD.  They have shed over 16 tons since the beginning of the year (which oddly enough is about the same amount that the Chinese public bought physically over just one weekend).  We have been under the assumption that the entire event was engineered, but what if we are wrong?  What if the “event” was “forced?”  Let me explain further, what if traders of futures saw a big (or many big) orders lining up to sell GLD?  What if the sellers of GLD were not selling because they were bearish of gold?  What if they were selling because they believed that GLD doesn’t really have the gold?  What if they were selling because they intend to turn their proceeds into physical metal?  Is it possible that the futures crash was a front running or even a response to investors shedding GLD shares?  Probably not and it would not explain 1/2 of the world’s total gold production being dumped in less than 2 days.

Think about the above questions and then ask yourself if you personally are skeptical of “paper gold.”  If so, then wouldn’t others also be?  Is it possible that some big, “dumb” money just figured it out?  Yeah I know, “big money” is not supposed to be “dumb,” they are normally portrayed as the “smart” money, otherwise how did they get to be “big” money in the first place?   During my years of dealing with pension plans, charitable trusts and other large pools of capital, you would be surprised at how “mentally dull” many of the directors and trustees are in reality.  It is very possible, most likely even probable that some big money, somewhere, “just now figured it out.”  Did this actually happen?  I have no idea and your guess is as good as mine… but the “paper” products will one day be exposed and what has just happened is all part of the process.

You can pretty much bet that more and more are just now figuring it out.  How can I say “just now?”  Easy, because where was the spotlight shined last month?  Directly on gold and silver and people would naturally start asking more questions.  These questions are logical ones and since we live in a world where not much can be trusted, which way do you suppose investors will lean?  Actually, we have already seen “which way” they are leaning.  Heck, even the president of the CME (COMEX’s direct competitor) has come out and said that people want the coins as opposed to paper.

In my opinion it is not only possible, but highly probable that ETFs like GLD can and will see days where they drop over 10% while the real physical metal goes the opposite direction and maybe even in bigger fashion.  THIS is the “panic” that we have to look forward to.  Investors are panicking out of their paper product that “represent” gold but is not gold.  I may not know when this circus will end but I think I know for sure how.  The end game will be one giant “cash call” where everyone asks for their metal at the same time… only to find out that it’s not there and may never have been.  This will not be a “run” on a bank. No; this will be a run on the system itself.