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Discussion Topics -- April 28, 2013
The Paper Market Panics While
Physical Buyers Rejoice

(March 15, 2013 discussion) The dramatic decline in gold two weeks ago has prompted a physical buying spree reminiscent of the 2008/2009 financial crisis. As the paper market went into panic, physical buyers rejoiced. Regarding the paper sell-off, we know this much to be true: A single entity sold 100 metric tonnes of paper gold on Friday April 12th, triggering an initial wave of stop loss order below the market support levels of $1520-1525. A follow on sale on Monday of 300 metric tonnes pushed gold $130 lower. The two day sell-off garnered wide-spread media attention, with the majority of outlets calling this the sure end to the bull market in gold. Anyone promoting stocks at the expense of gold quickly jumped aboard the "I told you so" bandwagon. Such cherry picking of data is laughable and we think this sell-off is hardly supportive of such conclusions. Gold has begun to regain its footing on the strength of physical demand, and has already recovered close to 75% of the decline. Meanwhile, premiums on physical gold and silver items has begun to push higher, as the paper market writes checks the physical market can't cash. Silver Eagles, for example, have seen premiums increase by 15%+. Historic $20 gold pieces are actually more expensive today than they were before the decline, due to premium expansion. The COMEX is only issuing warehouse receipts to would be takers of physical delivery. All the while, despite calls otherwise, the fundamental macroeconomic thesis on gold has not changed in the slightest. Japan is embarking on the greatest money printing experiment in the modern history. Europe continues to struggle with recession and the policy of austerity is wearing thin. And while some signals in our own economy suggest things are improving, its not showing up in the data. All scenarios suggest a continuation and perhaps expansion of the existing easy money policies, policies that tend to promote positive movement in the gold price. 34 Minutes, with Jonathan Kosares, Peter Grant and George Cooper.

Figure 1

Apple Inc. Stock March 2013

Figure 2

Yen 2013

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