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CME Urged To Change Physical Gold Delivery Rules Amid Market “Breakdown”

March 25, 2020

CME Urged To Change Physical Gold Delivery Rules Amid Market “Breakdown”

Over the past decade, one of the most fascinating observations in the world of precious metals has been the bizarre decoupling in the supply/demand dynamics and thus pricing, between paper and physical gold.

And, as we detailed yesterday, that decoupling has become extreme.

A surge in demand for physical gold – that results in precious metal vendors and exchanges becoming sold out in very short notices – has created shortages in some geographical locations that is stressing gold markets drastically. 

Don’t take our word for it. Even the venerable Financial Times reports that traders have reported and lamented a growing global shortage of gold bars, as the coronavirus outbreak both disrupts supply and stokes demand, “with one business comparing the frenzied buying of the yellow metal with the consumer rush for toilet roll.“

Yesterday, Saxo Bank’s head of commodity strategy, Ole Hansen, observed that a lockdown is occurring in two biggest gold hubs in the world, New York and London,  so many traders are working from home. “This has caused a breakdown in the marketplace”, he said.

“There is no price discovery in the market right now,” he said Tuesday morning.

“If you need to borrow gold in the OTC [over-the-counter] markets right now, you are going to pay a king’s ransom.”

And that ‘broken’ market is no more evident than in the decoupling between spot and futures markets.

The gap between gold futures on the CME’s Comex exchange in New York widened above London spot prices by as much as $80 per ounce – or over 4% – on Tuesday. The two usually remain within a few dollars of one another, and the gap skewed trading in the London market, causing activity to fall as traders feared shutdowns of air travel and precious metal refineries due to the coronavirus outbreak will make it harder to ship bullion from London to the United States to meet contractual requirements.

…click on the above link to read the rest of the article…

Peak Gold? No: Peak Gold Production? Perhaps

March 21, 2018

Some claim we have reached peak gold. It depends on what one means by the term. Perhaps we have reached peak production.

Last September, Bloomberg reported We’re Reaching Peak Gold.

The world may have already produced the most gold in a year it ever will, according to the chairman of the World Gold Council.

Production is likely to plateau at best, before slowly declining as demand rises, especially given global political risks and robust purchases by consumers in India and China, Randall Oliphant said in an interview Monday.

“It’s not clear how the whole U.S. political system will play out,” said Oliphant, an industry veteran who’s been an executive at some of the world’s biggest gold miners. “All this uncertainty seems very fertile ground for people to get into gold.”

“We’re not going to fall off a cliff in the near term, but in the same time it’s really hard to see how we’re going to produce enough gold to meet all this demand,” Oliphant said.

Meeting Demand

The last statement by Oliphant, the chairman of the World Gold Conference is absurd.

There is ample gold to meet demand. Unlike energy or silver, gold is not used up.

Nearly every ounce of gold ever mined is still in existence. The exchanges would not run out of gold even if production fell to zero tomorrow and stayed that way for the next decade.

What’s the Real Long-Term Driver for Gold?

Most analysts are totally clueless about gold and gold markets. They cite jewelry, mining production, central bank sales, and all sorts of other irrelevant factors in their analysis.

If you really want to understand what gold is all about, I suggest you read an interview on Gold Switzerland with Robert Blumen: “What’s really key for the price formation of gold?”

Blumen discusses assets vs. consumption, mine supply, jewelry, marginal demand, the alleged (and nonexistent “gold deficit”), and sentiment.

…click on the above link to read the rest of the article…

Global Gold Investment Demand To Overwhelm Supply During Next Market Crash

November 13, 2017

Global Gold Investment Demand To Overwhelm Supply During Next Market Crash

When the next market crash occurs, global gold investment demand will likely overwhelm supply.  When this occurs, we could finally see the gold price surpass its previous high of $1,900.  Now, this isn’t mere speculation, as we already have seen this taking place in the past.  When the broader markets crashed to the lows in Q1 2009 and the 10% correction in Q1 in 2016, these periods were to two highest quarters of Gold ETF investment demand.

I don’t really care on whether the physical gold is actually in the Gold ETF’s, rather I like to look at it as an important indicator that shows us how much investor fear there is in the market.  Moreover, with the amount of leverage and debt now in the system, when the market crashes this time around, it will push gold investment demand up to a record we have never seen before.

The chart below shows the amount of physical global gold investment demand over the past 14 years.  As the gold price increased, so did amount of gold bar and coin demand:

As we can see, during the U.S. Banking and Housing Market crash in 2008, gold bar and coin demand doubled to 868 metric tons (mt), up from 434 mt in 2007.  That was quite a lot of gold bar and coin demand as it totaled nearly 28 million oz (1 metric ton = 32,150 oz).  Furthermore, as the gold price jumped to $1,571 in 2011, gold bar and coin demand shot up to nearly 1,500 mt (48 million oz).

Now, the reason for the huge spike in physical gold investment in 2013 was due to the huge price smash as the gold price fell from nearly $1,700 in the beginning of the year to a low of $1,380 by the middle of April.  Investors thought this was a huge sale on gold so demand for bars and coins reached a new record of 1,716 mt.

…click on the above link to read the rest of the article…

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