The price of gold is going down. That is what the charts, newspapers and pundits are all saying…[but what] they are deliberately not saying is that the value and desirability, as opposed to the price, of gold is going up and will go up further. Make no sense? Well I think it does..[Let me explain.]
So writes David Malone (www.golemxiv.co.uk) in edited excerpts from his original article* entitled Paper gold, Metal gold – When Worlds Diverge.
The following article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Malone goes on to say in further edited excerpts:
Paper Gold (ETPs & ETFs) vs. Metal Gold: The Difference
If you remember, there are two types of ‘gold’ for sale. One is metal, the other is paper. It is paper gold that is being dumped not the metal.
- The metal is being bought at a fair old rate but because there is so much paper gold around and the major sellers and market makers in paper gold prefer metal and paper to be confused, even thought to be identical (their trade depends on this confusion), no one seems to be pointing out the very different dynamic happening in paper and metal gold.
- Paper gold is being sold and those selling it are the likes of Soros Fund Management LLC and BlackRock Inc….Does that mean Soros and BlackRock no longer want gold? No, it does not. It says they don’t want paper gold. They don’t want paper claims of gold.
For those that don’t know, ETPs (Exchange Traded Products) are very similar to ETF’s (Exchange Traded Funds) and both..[are] paper claims on something rather than the thing itself. If you buy a gold tracking ETP you are NOT buying gold. If you…[buy] an ETF based on bank shares, for example, you do not own any bank shares. In both cases, you own a piece of paper which says it will match the price of the gold or bank shares. It is these paper claims that big players seem to be selling as fast as they can without it looking like they are going for the exit. In fact, I think that is exactly what they are doing.
Metal Gold vs. Paper Gold; The Advantage
The fact is there is a vast pyramid of paper claims on gold which dwarfs the amount of actual gold available. Since the trade in gold ETFs took off we have been living in a fiat gold world. There are as many claims on gold as there are bits of paper on which to print them – and this fact confuses a great deal of the punditry about gold as a safe haven.[For example,] James Moore, an analyst in London states in a] Bloomberg piece…[that] “the reasons for holding safe-haven assets have abated…Investors are looking again at stronger growth assets.” I think he is wrong. 180 degrees wrong. I think the reason Soros and BlackRock are selling paper gold is because they know paper claims are not safe. Bits of paper with the word gold printed on them are not gold themselves and their claims in the metal are not safe. I suspect we will find they have sold paper and bought metal. I think Soros and BlackRock have sold paper gold because, contrary to Moore, the reasons for holding safe haven assets have not abated but are getting stronger…
The price and value of Gold backed ETF’s not only ‘tracks’ the value of gold but impinges heavily on it. ETF’s are sold as a way of ‘tracking’ the value of a kind of share or commodity…[and] ‘getting exposure to it’ but the whole family of Exchange Traded products has become so large, in some cases much larger than the size of the underlying market they are just supposed to be passively tracking, that they are not longer just tracking. They are having a decisive influence upon it.
Sell Paper Gold; Buy Metal Gold
As people sell gold ETF paper, it is causing the price of not only paper gold but metal gold to decline as well and I think this is creating a buyers paradise – if you have the pockets to take the risk.
- With one hand you sell paper claims on gold, let people confuse paper and metal and talk about how the price and desire for ‘gold’ is declining.
- [The] end result [is that] the amount of paper gold declines.
- Along side that decline some people sell real gold.
- With the other hand [you] buy metal gold.
You end up, if the game holds together, being able to buy real metal as the price declines, knowing that the price of paper and metal will diverge, at some point, rather drastically….
(Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
*http://www.golemxiv.co.uk/2013/05/paper-gold-metal-gold-when-worlds-diverge/ (© 2013 Golem XIV – Thoughts. All Rights Reserved; Written by David Malone, author of Debt Generation; To contact me please email me at [email protected])
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