Who is selling gold? This is the most interesting question today. To be honest, we must point that gold is not the only asset that is going down. Most of assets are going down due seemingly to Bernanke verbal market manipulations.
But in fact the same comments from the outgoing FED Chairman could do exactly the opposite. They could be interpreted as a risk for increasing interest rates that will lead to a bankrupt of the Federal government and this could make safe havens more attractive. So who is selling gold?
No one. Producers have almost constant output, contracted usually for a long term. Central banks that have much free cash (like Russia and China) are net buyers of gold. Big net buyers. The rest of central banks are conservative and even if not buying they are also not selling gold. So how the fXXk is gold going down?
The answer is very simple – the gold price is manipulated by trading not real gold, but gold derivatives. These are financial instruments that bet on the price of gold. But in fact their market is already much bigger than the market of real gold, so the gold price has become the price of gold derivatives. And as not connected with a real gold, it can go anywhere. If speculators decide and make an attack they can kick the price to $10 000 per troy ounce. If they decide to sell, they can make the price $1 per troy ounce. But is this a real market?
Conditionally yes. Till owners and real producers accept this price as a “market-price” this will be the price of gold. But it is obvious that such type of de facto non-market, but a manipulated price, can last only until the real price of gold is not much different from the manipulated one. Or not for a long time. Otherwise with a lower official price this will lead to an excessive demand a pressure up.
It is obvious the price of gold is manipulated in down direction in an effort to attack the natural competitor of the paper money system that is suiciding itself. Every time when paper fiat money is closing to collapse some type of repression against gold appears. Bans, nationalizations, taxes – these are usual and known in history tools of repressing the gold. Today we just have one more tool – gold derivatives, traded by politically correct banks.
It looks as speculators has no a break and think of continuing the sale. But very soon the price of gold will go below the production price. So obviously the producers will deny of selling at this price and at this moment the 2 markets will divide. There will be a market of derivatives and a market of real gold. Logically soon after that the market of artificial gold will crash. The same may happen even above the production price levels if the demand for real gold is above the supply. Then some types of premiums or transaction fees will appear. An instance of this is the premium for 1/10 and 1/4 troy ounce coins, required by… US Mint.
So while it is hardly to find real sellers of gold, it is logical to expect the fall-price illusion to vapor at any time.
June 27th 2013