Tuesday, March 5, 2013

Gold: high volume + large buyers = flat prices??

This link is to an interview with Eric Sprott.  He is the leader of Sprott Asset Management which runs several precious metals funds among other things.  He is in a good position to see the physical gold and silver markets because his funds have been buying physical for many years.  

Interview with Eric Sprott: Central Bankers are Gaming Gold

Eric believes that the world's central banks are manipulating the price of gold down.  Of course he cannot prove this.  However, there are some strong indications:
- the volume of gold that trades on the COMEX.  Some days the volume is close to the entire annual physical gold supply.  Such large volume must be mostly 'paper gold' or contracts to buy/sell gold.  There is not enough physical gold available to satisfy all contract holders if they demand physical gold at the same time.  The speculation is that central banks are supplying bullion banks who are on the sell side when necessary to meet the demands of contract holders.
- the volume of gold buying by China and India.  Eric supposes that some of that gold must be coming from other countries' central banks

The only way that gold prices could have been stable over the last 2 years while the markets trade huge volumes and China and India acquire more and more physical is if central banks supply some gold or at least promises (contracts) of physical gold.  

The question now is when.  When will the central banks stop selling their gold?  And how will markets and traders with paper promises react?  Will governments outlaw gold ownership and buying or selling gold before that day?  It is difficult to guess because the central banks are so opaque.  Central banks are not audited so even their current holdings of precious metals are unknown.

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