When investors and the general public realize that the U.S. based Comex spot price for gold and other precious metals is a meaningless indicator, then demand for the monetary metals may eventually skyrocket as they are predicted to do, after this Sunday’s vote in Switzerland over a gold referendum and return to the gold standard. But until then, only major buyers of the metals know the dirty little secret that could be worth thousands or millions of dollars to the quick.
And that is, gold shortages are now so great that premiums for large purchases are upwards of 30-40% above the manipulated spot price that issues daily from the Comex and from London.
“It is interesting to note that benchmark gold-dollar swap rates have recently traded negative, meaning investors are paying to borrow gold. This is unusual, as gold is traditionally used as a source of collateral for cash financing…. [A] number of factors may play a role, such as excess dollar liquidity or an increased demand for collateral on the back of the global regulatory developments.”
In short a gold shortage at the institutional, read commercial and central bank, level. And not just a shortage but the biggest shortage in history, judging by today’s latest plunge in the 1 Month GOFO which just dropped to -0.5% and , worse, 1 Year GOFO that just hit its lowest print in the 21st century, and is also about to go negative: something that has never happened before further suggesting the gold shortage could go on for a long, long time! – Zerohedge
GOFO is a term that means that the present price of gold or silver is greater than the future price, which is represented by the Comex spot price mechanism. Comex is a futures market, not a retail one, and their price only represents contractual values to buy or sell gold, silver, and other precious metals at the Chicago Mercantile Exchange (CME) on designated delivery dates.
This dichotomy is also the crux of a scenario known as backwardation, where dealers of physical metals sell their products for much more than the paper spot prices and in places like Shanghai and Hong Kong, where it is verified that there is physical gold available for sale, premiums above the paper spot price means that large purchase orders for gold are costing the buyers $1350-$1500 per ounce, or an increase of close to 30%.
This of course makes this Sunday’s Swiss gold referendum of vital importance because if it passes, gold demand by Switzerland on the open market will drive supply into the ground, and perhaps even cause a panic that will shatter the Comex’s hold over the manipulated spot price, and finally create a true price discovery based on market laws, not paper based fraud.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, and hosts the popular web blog, The Daily Economist. Ken can also be heard Friday evenings giving a weekly economic report on the Angel Clark radio show.
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Contributed by Secrets of the Fed of Secretsofthefed.com.