Gold: The Physical Market vs The Paper Market

Bloomberg reports that since the crash of the gold price last week

Asian buyers have stepped up bullion purchases since prices fell, with imports by India, the world’s biggest consumer, expected to jump by 36 percent through June compared with a year earlier, the Bombay Bullion Association Ltd. said. Australia’s Perth Mint said April 17 that sales doubled from last week.

LRC points to an e-mail from a friend living in Hong Kong who wrote to say that

Went to Hang Seng bullion counter yesterday. The line was out the door. It took an hour wait to see a teller. When I asked if people were buying in the dip or selling in panic, she told me that they haven’t had once ounce of gold sold back to them all day. She told me they have sold more gold in 24 hrs than they normally do in 3 months. Yes, there was a lot of extra security. The guy in front of me bought over $1 million USD in gold. He paid in cash and walked out of the door with the bullion in a Nike bag.

So indications are that the physical gold market is in particularly Asia is seeing a surge in buying following the dip in the gold price.

Meanwhile, in the paper market in the world of hedge funds, Bloomberg reports that

Hedge funds have reduced bets on higher prices by 72 percent since October while Goldman Sachs Group Inc. and Societe Generale SA predicted declines.

This has been an ongoing trend for some time. Physical gold continues to be taken out of the market as individuals in the know use current low prices to stockpile. All the while hedge funds and speculators – and possibly even central banks – are driving the price lower. This is a great opportunity to accumulate physical gold as one day when the currency and banking crisis hits one of the major economies (Germany/UK/US/Japan/etc), there won’t be any physical gold available for sale. This is Gresham’s Law in action. Bad, overvalued, paper money is driving out good, undervalued, gold money. Once the general public catches on to what’s going on here even a marginal increase in physical gold demand will cause shortages to develop and this will cause the gold price to climb much sharper than it has in any point in the past decade.