- “I’ve never seen anything like this”…
- What separates the “smart money” from the “dumb money”…
- “Dumb” money is buying stocks. But “smart” money is quietly shifting to a specific gold play. And a government meeting on October 29th could send this strategy stratospheric. Go here to learn what the smart money is planning — and how you can ride its coattails…
Dear Reader,
“I’ve never seen anything like this.”
Here, precious metals dealer Andy Schectman refers to the expanding chasm between the “paper” metals market and the physical metals market.
His answer reduces to the difference between substance and shadow within the precious metals market.
Substance and shadow? Let us distinguish between them. They reduce to simple mathematics.
In short, the paper metals market is to the physical metals market as 100 is to one.
Here is what I mean, precisely:
Assume the paper contract. The owner of the paper contract can demand physical delivery of the metal itself should he choose.
Yet the arrangement is, in reality, a vast ruse.
That is because several independent paper contracts may promise delivery of the identical physical metal.
Perhaps 100 or more paper contracts may lay claim to the same physical ounce.
This Is What They Get Away With
Imagine, if you will, a coat in your possession. You enter a night club with that coat draped upon your back.
You proceed to hand that coat to the coat check gal… who issues you a paper claim upon your jacket.
You assume it is yours, and yours alone.
Yet later that night, upon departure, you exchange the paper claim for the physical coat.
You learn, subsequently, that you are in for rough business — that you have in fact been rooked.
That is because the night club has issued 100 separate paper claims upon your coat.
You were not the initial claimant. Thus the night club has already handed your coat to another fellow, far less worthier than you.
Thus you go scratching… and depart furiously without the environmental protection you entered with.
Now you understand the paper metals market — and the large bullion banks that run it.
A Giant Pyramid Scheme
As leading gold authority and Freedom Financial News contributor Jim Rickards styles it:
- [The paper market] all rests on a tiny base of physical gold [or silver]. I describe the market as an inverted period with a little bit of gold at the bottom and a big inverted pyramid of paper gold resting on top. There’s just not that much gold available. But in the paper gold market, there’s no limit on size, so anything goes.
- Leasing of paper gold by bullion banks allows them to sell the same gold as much as 10 times over to 10 different buyers. It’s like a game of musical chairs, only with more participants and fewer chairs.
“But that’s fraud!,” you thunder. “They’re legally required to fulfill their promises to deliver you the physical metal.”
“Ah, have another guess,” counters the bullion banks.
They will refer the paper contract owner to the pygmy font at the foot of the contract. There he will learn the contract’s true terms.
“Unallocated Gold”
Mr. Rickards:
- If you read the fine print, it says is your gold is “unallocated.”
- That means they do not claim to have any specific bar with a serial number or your name on it. In reality they have taken the same bar of gold and sold it to 100 different investors.
- Now, that’s not a problem unless all 100 parties show up at once and ask for their gold. The first person may get the gold, but the other 99 people are going to get their contracts terminated. They will receive a check for the value of gold at the close of business the previous day. But they are not going to get the gold they thought they were buying.
These paper metals investors had merely acquired exposure to price movements in the metals market.
And now investors — institutional investors primarily — are abandoning trust in the paper metals market.
They are beginning to demand possession of the physical metals themselves.
And that demand for physical metal is backing the bullion banks into a corner that is very, very tight.
A ‘State of Seizure”
Fissures are already forming within the silver market.
Bank of America argues that the London market reduces presently to a ‘state of seizure.’
Especially powerful physical demand from India is — evidently — forcing the seizure.
The paper-laden banks simply cannot satisfy physical demand.
The abovesaid Schectman:
- People have accepted paper promises for a very long time and I think that’s coming to an end…
- In London they have a 140 million (silver) ounce float, yet they’re trading 600 million ounces a day… There’s over two billion ounces in paper claims out there on a float of 140 million…
- You’re beginning to see margin calls… they’re not able to get the silver to cover their position. That’s when things begin to get very, very, very interesting.
Very, very, very interesting indeed.
The “Smart Money” and the “Dumb Money”
Above, I cited institutional investors. Retail investors are presently flocking to the stock market.
Yet the institutional money — known also as the “smart money” — is seizing physical metals with clenched fists:
- The public is all loaded into the equity market, and the big money is leaving… standing for delivery on physical metal.
Why, precisely?
- Buying gold and silver right now is not — you’re not buying it to get wealthy. You’re buying it because it is wealth.
Physical metal is wealth, he says.
Thousands and thousands of years of human history stand behind it.
That is, gold and silver are wealth — or at least represent wealth in ways that the modern alternative cannot.
Yet we “moderns” believe that digital and gossamer abstractions represent wealth.
And so I close with a wager:
Upon which history would you wager your money — thousands of years of hard monetary history — or recent decades of abstract monetary history?
Regards,
Brian Maher
for Freedom Financial News
