Koos Jansen · @KoosJansen
22nd Dec 2016 from TwitLonger
@anandsr21 @Thejacka_lope @christanlaurin @LibertyBlitz @TFMetals my reply
I think what you miss is whether owners of "gold" are aware they own physical gold or a derivative of gold (unallocated, futures, etc). I think everybody is perfectly aware what he/she owns, and there is not a single instance where a physical gold payment is settled with paper gold (ie try to sell unallocated on the streets of India).
You write:
"First the gold standard, resulted in the currency acting as the paper gold."
I can see your point but the credit created from gold during the gold standard was "thought by the owners of the credit to be physical gold". Just like now, people that have money in the bank "think they own (ie) 10,000 dollars", they have no idea only (roughly) 5 % "exists". That's a difference.
Credit creation by banks does not equal paper gold creation.
You write:
"I guess because people feel safer holding paper promises to gold than real gold."
Please name me one example of someone that feels like this. If they hold a paper promise apparently they're not interested in gold, only in making dollars.
You write:
"It will die out naturally when the gold is not available for sale at the market price."
Again, this is a myth. There will always be gold available in the (wholesale) market. Hefty premiums and delays can arise, but there will always be sellers if the price is right (no sellers, price will go up).
You write:
"The market price is set by the sellers and buyers of paper gold."
How do you know? The price is not set by the large trading volumes (IMO). The thing is this, paper gold (paper hereafter) and physical gold (phyz hereafter) are two different products that are connected in price through the mechanism of 'delivery' for futures and 'allocation' for unallocated accounts. And, I just stated all owners of the two products are perfectly aware which type they own.
Of course the essence is phyz - as physical gold is phyz, and the underlying asset of futures and unallocated is also phyz. So how can paper determine the the price of phyz in the long run (short term different story, different post)? Suppose, 'they' smack the price of paper to $500 an ounce. Is there anybody on this planet then required to buy or sell gold at $500 an ounce? No (except miners, different post). That's why my theory is that in the long run 'physical supply and demand' is leading (for both paper and phyz). see ie https://www.bullionstar.com/blogs/koos-jansen/wp-content/uploads/2016/10/UK-Net-Gold-Flow-vs-Gold-Price.png
You write:
"So if anytime it happens that the west sells a lot of paper/physical gold, and the demand from the east increases so much that the sellers in the west cannot meet that demand."
What is the West selling? Paper or phyz? If the East is buying phyz 'someone' must be selling phyz.
The West cannot meet demand? Is there any proof? Did the price explode? COMEX default? LBMA implosion? Supply is there, what else are the Chinese importing?
You write:
"the physical sold will be less than the amount of physical that the east wants to buy at that price. This will cause the price of physical to rise, but similar demand for paper will not materialize. This will break the price of gold."
You mean the price of gold (paper and phyz) can, simply, go up? Without something breaking. What can exactly break?
You write:
"When the price of gold breaks, the gold will go in hiding. It will only be available in the black market at a much higher price. The market price will become only of paper gold, causing it to crash. I don't expect the price of gold to reach its freegold value immediately. It will take some time as more and more people will start buying gold. Yes that time has not come so don't expect this to be true at the moment."
This makes no sense to me. Why would it hide? Gold is immortal, there is 180,000 tonnes above ground. why would it stop moving?
This all sound like some wet dream of phyz holders. Not real to me.
You write:
"...At the time gold was around 300$/oz, so the amount was 2.7Billion at the time, and if it was sold on the market, it would have caused the price to go down,"
Why would a sell cause the price to go down? The size/volume of phyz sold and bought does not mean the price should go up or down. The forces between supply and demand set the price. Volume has nothing to do with it.
If APPL shares are traded a lot, should the price rise or all?
Volume doesn't mean anything.
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My thesis remains: if the price of gold is suppressed long term phyz needs to be supplied by CBs in the open market. Paper can only influence short term moves (with consequences).