Physical Gold Shortages Hit Metals Exchange

Bloomberg by way of Zero Hedge is reporting that in light of the COVID-19 Coronavirus fiasco, gold shortages are appearing as traders are seeking to cash in paper contracts (IOUs) for gold and take possession of the physical metal.

But the virus, and the global economic collapse that it’s sparking, have created such extreme price distortions that those easy-exit options disappeared on them. Which means that they suddenly faced the threat of having to deliver actual gold bars to the buyers of the contract upon maturity.

It’s at this point that things get really bad for the short-sellers.

To make good on maturing contracts, they’d have to move actual gold from various locations. But with the virus shutting down air travel across the globe, procuring a flight to transport the metal became nearly impossible.

If they somehow managed to get a flight, there was another major problem. Futures contracts in New York are based on 100-ounce bullion bars. The gold that’s rushed in from abroad is almost always a different size.

The short-seller needs to pay a refiner to re-melt the gold and re-pour it into the required bar shape in order for it to be delivered to the contract buyer. But once again, the virus intervenes: Several refiners, including three of the world’s biggest in Switzerland, have shut down operations.

“I realized it was going to be an extremely volatile day,” Tai Wong, the head of metals derivatives trading at BMO Capital Markets in New York, said of Tuesday. “We watched this panic develop literally over the course of 12 hours. Having seen enough market dislocations, you recognize that the frenzy wasn’t likely to last, but at the same time you also don’t know how long it would extend.”

By the end of the week, the shorts had sourced the metal and chartered flights, reverting the spot-futures spread…

But Morgan Stanley’s Exchange-For-Physical Index shows a large physical premium remains…

The real price.. for real gold? Nearer $1,800. If you can get it.

“There’s no gold,” says Josh Strauss, partner at money manager Pekin Hardy Strauss in Chicago (and a bullion fan).

“There’s no gold. There’s roughly a 10% premium to purchase physical gold for delivery. Usually it’s like 2%. I can buy a one ounce American Eagle for $1,800,” said Josh Strauss. “$1,800!”

“The case for gold is simple,” says Strauss.

“You want to own gold in times of financial dislocation and or inflation. And that’s been the case since time immemorial. And gold behaves well in those cases. In those cases stocks behave poorly. It’s a great portfolio hedge. Gold does poorly when you’ve got strong economic growth and low inflation. Tell me when that’s going to happen. Gold held its value during 2008 and after all that money printing it tripled over the next three years.” (source)

It is both gold and silver that are invaluable to hold in troubled economic times because the metals retain value as opposed to losing them.

For years, people have discussed how the prices of gold and silver have been artificially suppressed by the existence of gold and silver contracts, for there are more contracts in circulation than actual pieces of metal. ‘

The deception for this is clear. There is more promises to pay than actual money in existence to pay. This is like getting a coupon for a free chicken sandwich, but when you go to the chicken store, there are no more sandwiches left.

We know what happens in real life when such passes in America.

Now this is over a chicken sandwich at Popeyes- murder, fights, and street violence.

Imagine what would happen if this was somebody’s life savings, or those of a company.

The coronavirus is causing the global economy to fall apart, and the effects are becoming manifest to the public.

Right now, if one has assets, it is time to preserve them. However, not only is gold almost impossible to buy for anybody, but so is silver. In fact, there are queues right now to purchase silver.

There may be a reversal once the trump ‘stimulus’ package comes, but that is yet to be proven.

What we can say for sure is that the currency is going to depreciate because of the rampant money printing, and those left holding physical gold and silver will be able to preserve the value of their assets, while the great many who do not have physical metal in their possession will likely not be able to.

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