Physical Gold Market will eventually overwhelm Paper Market
Recently on the Keiser report, Gold expert Egon von Greyerz was interviewed by Mr. Keiser. They discussed the European economy and the Gold market at length. One of the topics was the dis-connect between the basic fundamentals of supply and demand.
The strange phenomena happening in the Gold market has been the fact that physical Gold demand has been in one of its strongest periods in history yet the price has been sideways to lower.
In contrast the supply of US treasury paper has been at an all time high and the price continues to go up? Those of you who are students of economics know that this type of behavior is highly unusual and suggests that something in the market is possibly being manipulated.
The discussion centers around the fact that soon the paper Gold market which is 100 times larger than the physical market will have to settle in cash because there is not enough physical Gold to cover every contract.
The interview is worthwhile to listen to if you are a Gold investor. The interview starts at the 16.00 minute mark and last about 12 minutes.
Is Peak Gold Here?
To expand on the topic of Gold supply, according to an article on ZeroHedge, Gold market forecasters are expecting peak production in 2015. This coincides with a 20 year development cycle from peak discovery. (Source: ZeroHedge 2015 March 27th)
The article cites that that there are only 20 years of known mineable reserves of Gold. While that may seem like many years of reserves, remember that the Gold market is tiny compared to many other commodity markets.
A country like China is capable of absorbing an entire year of Gold production by itself. A couple of months ago we mentioned that during 2014 Central Banks bought approximately 477 tones of Gold, which was nearly a 50 year high. So with Physical Gold demand remaining strong, shortages are a likely outcome in the years to come.
Should peak Gold be here, it is ironic how it is arriving at a time when fiat money creation is arguably at its highest level ever. This sets up the possibility that there will be big changes in both the currency and Gold markets in the foreseeable future.
First time Gold buyers should consider studying the supply dynamics in the market. It always best to buy while the availability is good and premiums are low.
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