Record High Demand For Physical Gold Threatens To Break The Back Of The Paper Gold Market

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Crushed Car By UCFFoolThe demand for physical gold is exploding all over the world, and bullion banks are now experiencing a supply crunch that is absolutely unprecedented.  As physical demand continues to rise, the massive Ponzi scheme that the bullion banks have been engaged in is going to become increasingly obvious, and at some point the lack of physical gold is going to break the back of the paper gold market and we are going to see the price of gold go to levels that we have never seen before.  You see, the truth is that the central banks of the world and the bullion banks have made “paper promises” that vastly exceed the amount of actual physical gold in existence.  This kind of scheme works fine if everyone does not come asking for their gold at the same time.  Unfortunately for the ones running this scheme, people are now starting to ask for their gold back and it is causing huge problems.


It started earlier this year when Germany asked for 300 metric tons of their gold which was supposedly being held at the New York Fed.  If the New York Fed really did have as much physical gold as they claim that they do, that request should have been no problem.  Instead, the Germans were told that it would take seven years to fulfill the request.

At that point, alarm bells started to go off in financial circles all over the planet.  People all over the globe began asking for their gold back, and now this is causing serious stress for the bullion banks.  The following is what Hong Kong hedge fund manager William Kaye told King World News the other day…

There are serious strains in the (gold) system. I’ve never witnessed such a serious strain in my lifetime in terms of the backwardation of gold, and in terms of the lease rates being negative for such an extended period of time. This suggests that there are two forces at work: One is that there are serious strains in the system — that the bullion banks are struggling to come up with the physical gold for spot delivery that the market demands.

Right now the bullion banks are experiencing unprecedented difficulties coming up with the physical gold and physical silver that they are supposed to have.  Evidence of this supply squeeze is starting to pop up all over the place.  Some of this evidence was summarized in a recent article by Jim Willie

It’s so ugly that in the silver market, JPMorgan has not yet satisfied and delivered on the June silver futures contracts!  It’s so ugly that using hidden entities that Andrew Maguire has detected in London, JPM is using hidden entities to hog 90% of the July silver deliveries!   It appears that JPM doesn’t have the silver to meet June delivery, and is trying to replenish their own vaults by taking delivery in London, secretly, to replenish their inventory!   Where are they getting it from?  Maybe the SLV!

The JPM clients have removed between December and June- close to 40,000 kg of gold- thats 40 metric tons.  While JPM’s house account has removed over 40 tons in the same period!  What’s the lesson there?  It appears JPM’s best friends and clients don’t trust them anymore!

My best source (originally a trader with Scotia Mocatta) tells me that the allocated gold account raids have resulted in 40-60,000 tons of gold!   (The US likely doesn’t have any of its reported 8,500 tons left at all!).   Rubin and Clinton might have made $2-$3 trillion leasing and selling the US gold.  Someday the US may have to replenish its gold.

We’ve had other things like ABN Amro’s default, and another small Dutch bank just made the same statement that they’re not going to redeem on gold accounts.   Morgan Stanley is stalling on every single metals transfer request.  When it is finally transferred the serial numbers and weights are different than what was documented.  Clearly the broker dealers are going into the market to find the gold, to find supply just in order to meet their daily requirements.

The Brinks’ accounts are going bare and are almost down to zero – these are all problems on the supply side!

At some point the lack of physical gold and the lack of physical silver are going to become glaringly apparent to the general public, and at that point we could see a fundamental shift in the marketplace.  Keith Barron speculated on what the “trigger” for this shift might be during a recent interview with King World News

All I know is that this ‘trigger’ which is going to ignite this move is coming, and it will involve substantial repricing of both gold and silver. One possible trigger may turn out to be a failure of the COMEX. We do know that there is a shortage of physical gold for delivery, and that’s because so much gold is going to Asia right now.

You can see by the price action in the U.S. dollar right now that the Asians are dumping their dollars. But, interestingly, they are also paying a premium to get physical gold right now with no delay in shipment. So there is a loss of faith in the paper gold and silver markets by major participants. It’s almost as if they expect a failure.

Barron is fully convinced that we will eventually see a “breaking” of the COMEX which will shock the world…

I firmly believe there will be a point in the future when this sort of event triggers a run on the COMEX, and more and more entities are going to ask for physical delivery. This will have the effect of breaking the COMEX and creating a failure. When that takes place you will see an explosion in the prices of gold and silver that will literally shock market participants around the world.

And the truth is that this has been a long time in coming.  The bullion banks should never have made so many empty paper promises.

There is only so much physical gold out there.  Warren Buffett once estimated that if all of the gold in the entire world was gathered into one place, it could be formed into a cube that would only be 69 feet long by 69 feet high by 69 feet wide.

That isn’t a whole lot of physical gold.

But there is a massive amount of “paper gold” out there today.  In fact, as I noted recently, the Reserve Bank of India says that “the traded amount of ‘paper linked to gold’ exceeds by far the actual supply of physical gold: the volume on the London Bullion Market Association (LBMA) OTC market and the major Futures and Options Exchanges was OVER 92 TIMES that of the underlying Physical Market.”

Did you grasp that?

The reserve bank of India says that there is more than 92 times as much “paper gold” as there is physical gold.

This is why you want to own physical gold.

And right now the global appetite for physical gold is absolutely voracious.

According to CNN, consumer demand for physical gold is now at an all-time record high…

Bargain-hunters are snapping up gold jewelry and coins as investors desert the metal and world prices plunge.

Global consumer demand for gold hit its highest level ever in the second quarter, spiking to 1,083 tons, up 53% compared to the same time last year.

Most of that demand came from China and India, where consumers rushed to buy jewelry, coins and gold bars.

In fact, according to the latest World Gold Council Gold Demand Trends report, demand for gold bars and gold coins in the second quarter was up 78 percent over the same quarter last year…

Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.

Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500t in a quarter for the first time.  In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewellery demand and bar and coin investment together, global consumer demand totalled 1,083t in the quarter, 53% higher than a year ago.

For the tenth consecutive quarter, central banks were net buyers of gold, purchasing 71t, which reinforces the trend that began in Q1 2011.

All of this physical demand is putting a tremendous amount of pressure on the paper market.

At some point the paper market is going to break.

When that happens, the price of gold is going to go absolutely skyrocketing.

Gold Coins

  • seth datta

    Ask Sir Rothschilds who has all the gold.

  • Richard

    A Word Of Advice, Michael.
    Be careful with all the nonsense you read. I used to be a big metals and currencies trader in the 1980s. Some of the people you quote are very flaky. Jim Willie, for example, is full of misinformation and suspect ‘facts’. There’s an ENORMOUS amount of rubbish written about gold and silver.
    Just remember one thing, Michael, which will stand you in very good stead when it comes to ‘paper’ gold. Paper gold contracts are a zero sum game. This means that for every long there is a short (not true in the stock market). Therefore it is impossible to ‘corner’ the market in the way described. It’s just physically impossible. Comes cannot be ‘broken’ in the way described. Simply cannot happen.

    • Guest

      Richard, which facts & misinformation does Jim Willie have? And which rubbish is written, is KingWorldNews a valuable source? Tnx.

    • Joe Shmo

      Richard, if a “long” demands physical delivery at the end of a futures contract and the “short” doesn’t have it, how is that resolved? I know the answer, the Comex allows for cash settlements. At that point wouldn’t you think that “traders” would consider the Comex broken? When physical delivery on a futures contract stops, and all they get is USD?

  • rentslave

    Forget the gurus.Just check the baseball standings to see how the Philadelphia Phillies are doing.If they’re in a long term uptrend,so too is gold.It works the same way on the other side.The indicator has worked since gold’s re-legalization in the 70’s.

  • DJohn1

    The problem is confiscation. Who controls the market place? I guess it is the Federal Government . . .

    That is why I have no confidence in the Silver or Gold market.
    History teaches us or not. FDR made it illegal to own gold for a very long time by U.S. Citizens. What makes you think that the Hunt situation in the 90s won’t re-occur with gold?
    The government bought gold for $20 an ounce when they confiscated it. They then sold it on the international banking situation for $35 an ounce. And it stayed that way for a good number of years. Only recently have we re-acquired the right to own gold other than jewelry.
    Currencies come and go. At the beginning of WWII Britain had a currency worth $5 approximately against the U.S. dollar. By the end of World War II it was at $2.80 per pound. By the 70s it had devalued itself down to approximately $1.15 a pound. When I last exchanged money in 2007 it was approximately $1.95 per pound.
    The Swiss currency since 1950 has increased in value 3500% if my sources are correct. They have consistently undervalued the currency to attempt to deal in exports to other countries. It hasn’t really worked out.
    The Swiss cater to the rich. They have huge amounts of currency from Saudi Arabia and the royal family resides a lot in Switzerland. Many rich people find Switzerland the country of choice. One of our billionaires found sanctuary there when he was under indictment here. Clinton pardoned him on his last day of office.
    Recently political pressures from the U.S. have made Switzerland a questionable sanctuary. But for years it was where dictatorships escaped to when things became intolerable at home. Usually with a load of questionable funds.
    A lot of Germans from Nazi Germany had accounts there.
    But South American appealed to them as a safer place to seek sanctuary.
    Theory has it that there is a layer of Gold under the crust and platelets. This layer often comes to the surface as the plates overlap. That is why California and Alaska had gold mines in abundance at one time.
    But in order for Gold Mining to be profitable, the value of gold must be extremely high. Demand must exceed supply in order for that to happen. Government control and restriction of mining happens all the time.
    Maybe the government might find it convenient to extract that gold if the situation of paper is getting too embarassing.

  • Ben Jacobs

    you know what else is in record demand….DEEZ NUTZ!!!!!

  • jaxon64

    gold is up 6% since its recent low…and silver is up 17%..looks like we are headed for an upward cycle again…but what goes up…………

  • seth datta

    More banker manipulations designed to disempower us all and make us slaves to their totalitarian agenda.

  • jaxon64

    Excellent post and well presented-however you have a few erroneous presumptions which are important…
    Some Facts: presuming that there is a vast amount of gold under the “crust” of the plates in Alaska and California–there are issues with the rest of your presumptions..
    First: the “crust” is essentially the solidified membrane which we know as surface land –oceanic crust is on average about 9 miles thick–however continental crust such as the California coast is on average 19 miles thick–and even thicker there since it is a subduction zone—
    Second: the world’s deepest mine is a gold mine in S Africa which is 3.9km deep or = 2.4 miles. The pressures and temperatures at that depth are so severe that humans can only tolerate it for short periods–and no machinery is able to mine ( we’re talking mining-not drilling) at that depth from the surface.
    Third: that leaves us with only one way that a huge pocket of gold under the crust of the coastal Pacific US could see the light of the sun–a massive subduction quake. In order for there to be a subduction event strong enough to bring earth from 19 miles down to the surface of the planet–a quake of the magnitude of a 15 on the richter scale would be needed. A quake of this size would literally level all of the mountains of the world—sink islands into the oceans…and cause tsunamis that would race completely around the world at heights of miles…
    Just thought these FACTS..might help you to adjust your reasoning.
    Your point of gold value also being dependent on the cost to get it from the ground is true…the idea that there are vast amounts that will be easily accessible is erroneous…..

    • DJohn1

      How does the existing gold get to the surface?

      • jaxon64

        Gold is often found in streams or near streams because water and wind create erosion. Some has been pushed near the surface from millenia of geologic transformation ( much of it before mankind’s building)–and of course, there are some veins which run shallow within the crust which allow for mining of it…hope this helped answer your question…

        • DJohn1

          I am saying that where the platelets overlap there is the possibility that this extreme layer of gold may have pushed up to near the surface. Now how it occurred is a matter of speculation. Volcanoes would be my guess.

          For instance under Yellowstone National Park is an area of weakness in the crust where a super volcano might have occurred in the remote past. That explosion might have done a lot of things. One might have been molten rock from the deep core was pushed upwards.
          South Africa has a long history of Gold Mining reaching many thousands of years into the past. I am no geologist. They would have a better idea than me. I know we have one of the thinnest land crusts in the solar system. You are right about the solidified crust being better than double on the land than it is on the bottom of the oceans. I am saying the double depth is where the platelets have crept on top of one another in the past.
          And that platelet jumping is where the gold might have reached the surface.
          A large discovery of gold has been found in the Southern regions of Chili and Argentina recently. The nations are keeping the discovery under wraps. But it is in the mountains in that area of the world.
          The virtually untapped mountain range is in the middle of the Atlantic. It goes almost pole to pole. I suspect a big discovery of gold might occur someplace like the surface islands on top of those mountains. Again we are looking at extreme volcanic activity pulling the gold up from that layer deep in the Earth.

          • jaxon64

            yes–I agree. Where plates overlap you often find gold–they are called mountains…..mountain streams and high altitude winds create erosion which wash the gold free.
            I don’t understand your point….gold that is accessible is highly valued and always being prospected for…..there may also be lots of gold way too deep to be accessible unless there is a cataclysmic geologic event like a super-volcano or global quake–either way, if one of these events happen, the acquisition of gold won’t be a human priority.

          • DJohn1

            My point is we have only just started to look for gold with modern technology as a tool. There may be enormous amounts of the metal easily found that we have never had the tools to find before.
            The platelet overlap is probably the most likely place to look.

            Michael’s excellent point is there are more paper trails to gold than there is existing stocks of gold. One way around that is to go look for more gold with modern technology. The government in need is the most likely candidate to do just that.

  • jack nichols

    when physical gold and silver skyrockets then that will be the end of fiat money. Currency will be worthless, banks will fail, and silver and gold will become the defacto currency in the USA. I will not be pretty but it will be the end of our civilization as we know it. People will barter with tools, guns, ammo, water, silver gold and food. interstate commerce will be destroyed.

    • sandra schmidt

      You’re the cheery sort, aren’t you?

      • jack nichols

        It shows doesn’t it…Cheerio