Gold Price Suppression
The gold price has been suppressed in dollar terms because Exchange Traded Funds (ETF’s) and Bitcoin (digital gold) have diverted demand from physical gold to paper/digital gold. By artificially increasing the supply of paper and digital gold, the price can be suppressed even as demand for physical gold increases.[1]
ETF’s are not backed 1:1 with physical gold. The SPDR GLD can create new gold contracts by backing the contracts with cash.
“Additionally, baskets of GLD can be created with cash instead of physical gold. Page 20 states,
‘On any business day, an Authorized Participant may place an order with the Trustee to create one or more Baskets. Purchase orders must be placed by 4:00 PM or the close of regular trading on NYSE Arca, whichever is earlier. The day on which the Trustee receives a valid purchase order is the purchase order date.
By placing a purchase order, an Authorized Participant agrees to deposit gold with the Trust, or a combination of gold and cash, as described below.’
Further emphasizing that GLD is not backed by gold is found on page 28.
‘The Trust issues Shares in Baskets to Authorized Participants from time to time in exchange for deposits of the amount of gold and any cash represented by the Baskets being created. A current list of the Authorized Participants is available from the Trustee and the Sponsor. Because new Shares can be created and issued on an ongoing basis, at any point during the life of the Trust, a “distribution,” as such term is used in the Securities Act, will be occurring.’”[2]
Bitcoin is sold as superior to gold but is marketed as a gold coin. It is not even a coin. It is fundamentally just numbers on a computer screen. The computer needs gold in order to function; so demand for bitcoin is fundamentally demand for gold. If bitcoin is to replace the dollar, then there has to be a direct exchange of gold for bitcoin instead of those seeking to profit in dollar terms.
Why billions of gold owners, who have demand for jewelry, electronics, and a historic exchange rate,[3] would trade real gold for a picture of a gold coin while Central Banks are printing the money to pay off their nations’ debts and simultaneously buy gold, is beyond the author’s understanding.[4]
“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”-Former Federal Reserve Chairman Alan Greenspan, Meet the Press, August 7, 2011.
At some point, the price suppression will break as demand for physical gold outpaces the supply of physical gold in ETF’s. When the music stops, ETF and bitcoin holders will find out that they have been playing a game of musical chairs and the chairs are already occupied. Having a paper or digital receipt for gold or digital gold will not be the same as owning gold.
“Gold is a currency. It is still by all evidences the premier currency where no fiat currency, including the dollar, can match it.” - Alan Greenspan, in an interview for the Council on Foreign Relations, Nov 2014[5]
End Note: to keep the subject simple, I did not go into detail about how gold contracts sold on the COMEX and London Bullion Market Association (LBMA) set the price of gold. All you need to know to figure out if there is not indeed 1:1 gold backing for any gold contract is if the language is simple. An excellent article on the COMEX is written by Ronan Manly at Bullion Star.[6] He writes,
“For those who have at times struggled to understand the difference between COMEX inventory categories ‘registered gold’ and ‘eligible gold’, now your head can spin even more, since the CME’s COMEX has just introduced a new category ‘pledged gold’.
…
If this pledged gold category snowballs, it will be even more important to remember that any COMEX gold warrants which are deposited as performance bond collateral with CME Clearing will move out of the Registered gold category, since the holder ‘may not use these warrants to satisfy their delivery obligations.’
Which will mean an even smaller pool of registered gold to keep COMEX gold futures trading going, a paper gold trading casino which is actually a giant Ponzi scheme, but for the time being is unfortunately and perversely still nearly single-handedly responsible for international gold price discovery in the global gold market.”
[1] https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q3-2019
“A surge in ETF inflows (258t) outweighed weakness elsewhere in the market to nudge gold demand 3% higher in Q3.”
[2] https://www.hamiltonmobley.com/blog/the-spdr-gld-prospectus
[3] https://www.hamiltonmobley.com/blog/basel-iii-banking-regulations
[4] https://www.hamiltonmobley.com/blog/bitcoin-vs-gold-and-silver