In the old days when money and banks were “real”, people would deposit gold or “notes” in their bank for safekeeping. Theoretically banks would only issue an amount of notes equal to but not exceeding the amount of gold that they held. Then along came fractional reserve banking and of course “fiat banking” where gold was taken entirely out of the equation. When times were bad and or “rumors” spread that a bank did not hold enough “money,” depositors would show up at the front door of their bank and “run it.”
This concept of a “run” goes all the way back to the ancient days of the “Smiths” (gold and silver) but was put on hold and tucked away into the pages of history once “deposit insurance” came along. Deposit insurance worked for many years and even worked during the 2008 and 09 events. It worked because sovereign governments stepped up and put their balance sheets on the line. There is/was only one small problem with this, sovereign balance sheets have deteriorated so much over these last 5 year that they themselves have become suspect.
So, back to the concept of “bank runs.” Here in the U.S. we really cannot have one because the Fed can print up enough dollars to satisfy the demands of any and all depositors wanting out. Instead we can have a run on the Dollar itself and the entire system in earnest. I mention this because in essence there is a global run on gold happening right now. You can see it everywhere. You can see it locally at your coin shop, you can see it at the big dealers and the mints themselves. You can also see it happening in the big ETFs and exchanges like COMEX and LBMA. You can also look at the refiners themselves to see what is happening. It is undeniable that the rumblings of a run are happening yet very few can hear it yet (or want to).
It can be argued that the unnatural takedown of price has caused people to stampede the physical markets and ask for deliveries of “held” metal. I personally think that this was already happening and going to happen BEFORE the price takedowns and was merely a desperate move by the shorts (central banks) in an effort to “shake” some physical fruit from the trees. The tactic has backfired very badly and not only was there no dumping of physical holdings to create supply, MORE demand for physical inventories appeared and have brought forward the “run.”
It does not matter “what” you want to call this event of a mad scramble to procure and possess physical metal. You can call it anything that you’d like, in reality it is simply a “good old fashioned run on the bank.” Gold was demonetized in the 80’s and 90’s…in perception only. It did not “go away” and it did not stop having neither value nor “being” money. It was only “marginalized” perceptually, now we are finding out that it was never marginalized in reality. And even though nothing including the world’s “money” is backed by gold, a “run” on gold will be seen for exactly what it is…a run on the banks or in essence the SYSTEM itself.
I am sure that many people would look at a run on the inventories and their ultimate emptying as “no big deal” because… who cares if the gold runs out? I would say this, first of all JP Morgan himself testified before Congress and said “Gold is money and nothing else. Not credit, not receipts, only Gold.” Gold was the collateral that stood as the financial foundation and built everything. Then, financiers in their foolish “infinite wisdom” figured that they could break gold’s conservative shackles and could build finance without a foundation. So much so that Alan Greenspan said that we didn’t need gold because the central bank could “act” as if they were on a gold standard and keep dollars “scarce and finite”. I guess that QE this, QE that and QE4EVA have proven this to be laughably false.
The bottom line? Just as in the “old days” (back when there was a rule of law and someone’s word was a bond), if, WHEN, the gold runs out…the “bank is broke,” period…end of story. Not only that, EVERYTHING that the “bank” has promised is worth nothing because they are broke. The problem now is that governments (the bank) have promised everything to everyone and none of it can continue to perform after the gold runs out. It is clear that at current prices, gold and silver will be hoarded away from the system and the “bank” will run dry. NOTHING “financial” will be left standing and as the saying goes…”everything will be worth nothing” (or infinity in dollar terms).
To wrap up I’d like to mention that after yesterday’s unheard of “reversals,” we have again seen an “attack” that looks like it may be reversing. I will say this, the physical buying that we have seen as prices have dropped artificially will change gears when the reversal is complete. Once the sentiment turns, the mindset will change to “the train is leaving the station” and I believe the physical demand will expand into a “run” as like I wrote above. If I am correct and rising prices brings out new and much greater demand then I can see it turning into an all-out run. A run that may not last even a week as inventories are emptied and we “go to bed at $1,500 and wake up at $4,000” bid and not even 1/10th of an ounce offered. A good old fashioned run on the bank!