Paper Gold Versus Real Gold

I can sense that the paper/gold denouement is at hand and that paper is going to be resoundingly defeated in what well might be the final battle between paper and gold in the war that has been ongoing since 1914. In that year, most of the world abandoned the gold standard in favour of fiat money so that they could print money to purchase all the required accoutrements to fight that bloody war. I won’t go into the history of the paper/gold battles since then. I have discussed them in many of my earlier writings. Suffice to say that gold was soundly defeated when Richard Nixon took the dollar off gold in 1971, after which paper currencies have ruled and gold has been subdued until recently (2001).

After 2001 (Gold price $255.00 per ounce), the price of gold began to increase, indicating that it was ready to do battle once again with paper. This battle has been ongoing ever since. In September 2011 the price of gold reached a high of $1,920 per ounce, 7.5 times higher than it was in 2001. Clearly, paper was facing defeat, but it wasn’t yet ready to surrender.

Central banks ramped up the printing presses, creating masses amounts of new paper currencies. Gold itself had been infiltrated through the creation of many, and in some cases, very large paper derivatives such as ETF’s linked to the gold price. The COMEX, which is the paper-traded gold futures market, became the means by which the gold price could be contained. This was most evident on Friday April 12 and Monday April 15, 2013 when in those two days alone huge selling on the COMEX dropped the paper price for gold by $230.00 per ounce.

Whatever the reasons for the takedown and I’ve already given you what I think made the most sense for such an attack on the gold price, I think it was the final battle. The paper generals threw all that they had to collapse the price of gold and all that did was bring huge worldwide buying into the physical metal.

Given the Cyprus bank theft, the manipulation of prices in the gold paper market and in some cases the denial of paper to physical gold convertibility (See ABN Ambro), there is a fast growing desire to convert gold paper claims into physical gold and move that gold out of the banks. It is highly unlikely that this move out of paper gold and into the real metal can be reversed; indeed the pace of the move is likely to quicken because trust in governments and in banks is fast eroding.