If You're Holding Paper Gold, Get Physical Delivery NOW!Submitted by Missy on Tue, 09/25/2012 - 00:57
Manipulation of the Gold Price
by Jeff Thomas
Bullion banks generally hold only a small percentage of what they sell. Banks claim to hold 10%, but a real number may be as low as 1%. This is possible because most buyers keep the gold stored in the bank where they bought it. All the buyer really has is a piece of paper stating that the gold exists in the bank and is being held for him.
As the economy worsens, the price of gold will rise. The worse the economy is, the greater the fear of owning fiat currencies. The greater this fear is, the greater the demand to hold gold. The greater the demand, the more the price goes up.
As the price of gold rises, the banks will make periodic moves to cause it to drop. They will make an offering of more gold for sale (which, again, they do not possess). Like any commodity, the more there is on the market at any given time, the lower the price will be. Thus, the price is forced down by the banks, collectively.
The manipulation is made possible due to the fact that what has been sold does not exist. The regularity of manipulation is unlimited, as the bank is only buying a fraction of the gold it sells. As long as the bank's clients are willing to invest in "paper" gold, the price may always be driven down, due to new "sales."
Of course, this charade cannot go on forever. Eventually, the buyers realise what is being done and will then demand delivery of their gold. This will bring about two major events: a crash in the paper gold market and a dramatic increase in the price of physical gold.
The Crash of Paper Gold
Here is an assessment of how this is likely to play out:
The demand for allocated gold increases. Traditionally, a large portion of gold investment has been in ETFs and similar methods. As more investors get word of rumours that banks are actually holding only a small fraction of the gold that has been sold, they will decide only to buy if the gold is "allocated"; that is, that specific numbered bars or specific boxes of coins are being held for the buyer. (This trend already exists and is becoming more prevalent.) At this point, there is no panic, as the allocated gold simply replaces the ETFs. The amount of money invested in gold with the banks overall remains about the same.
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