Why Isn’t Gold Acting Like a Safe Haven—Yet? The Gold–Oil Ratio and the Liquidity Stress Behind Early-Crisis Gold Weakness (Part II)

 

It is particularly odd that economists who profess to be champions of a free-market economy, should go to such twists and turns to avoid facing the plain fact: that gold, that scarce and valuable market-produced metal, has always been, and will continue to be, by far the best money for human society— Murray Rothbard

In this issue

Why Isn’t Gold Acting Like a Safe Haven—Yet?  The Gold–Oil Ratio and the Liquidity Stress Behind Early-Crisis Gold Weakness (Part II)

I. What the Quiet Actually Means

II. Safe Havens and the Hierarchy of Money

III. The Gold–Oil Ratio and Crisis Transmission

IV. Mean Reversion or Regime Shift? Interpreting the Gold–Oil Ratio

V. Liquidity Stress: When Gold Falls First

VI. Real-Time Example: Central Banks Mobilize Gold, Turkey’s Gold Sales

VII. Real-Time Example: Liquidity Stress in the UAE

VIII. Gold Across Monetary Regimes

IX. Conclusion: The Signal in the Silence 

Why Isn’t Gold Acting Like a Safe Haven—Yet?  The Gold–Oil Ratio and the Liquidity Stress Behind Early-Crisis Gold Weakness (Part II) 

Energy shocks, dollar liquidity stress, and why gold often lags before it leads during financial crises 

Part II 

I. What the Quiet Actually Means 

Part I examined why gold has remained surprisingly subdued despite escalating geopolitical tensions and rising oil prices. The explanation lies not in the failure of gold’s safe-haven role, but in the mechanics of liquidity stress and the structure of the global bullion system. 

Part II explores what that quiet may be signaling. By examining the relationship between gold and oil, the liquidity dynamics of financial crises, and gold’s behavior across monetary regimes, a clearer picture begins to emerge. 

Gold’s silence may not reflect stability. 

It may instead reflect the early stage of a broader liquidity adjustment inside the global dollar system. 

While modern financial systems are built on credit rather than metal, periods of stress often reveal that the hierarchy of money still persists beneath the surface. 

II. Safe Havens and the Hierarchy of Money 

Safe-haven assets are often misunderstood. In practice, they represent savings held in forms with high moneyness—assets expected to preserve value (store of value) while remaining readily marketable during periods of stress. 

Their appeal rests on two characteristics: the ability to preserve purchasing power and the ability to be converted into cash quickly with minimal price disruption or marketability. 

Crucially, these properties are context-dependent. Assets perceived as safe are not inherently risk-free; their status reflects market confidence in their liquidity and convertibility. U.S. Treasuries, for example, are technically government liabilities, yet they function as safe assets because of their deep, liquid markets and the central role of the dollar in global finance. 

Gold occupies a distinct position in this hierarchy. Its moneyness is reinforced not only by the absence of counterparty risk but also by physical characteristics—durability, divisibility, recognizability, and malleability—that historically supported its acceptability across time and geography. 

These features contributed to gold’s persistent marketability, particularly in environments where trust in financial intermediaries weakens. 

However, as Austrian economist Gary North emphasized, these properties do not constitute intrinsic value. Value is not inherent in the metal itself but is imputed by market participants. Gold’s status as a safe-haven asset therefore arises from sustained confidence in its liquidity and acceptability, especially under conditions of stress. 

This hierarchy becomes clearer when markets transition from stability to crisis. 

Figure 1

The divergence among major fiat currencies highlights how gold’s moneyness becomes more pronounced as confidence in fiat purchasing power declines. (chart from Jesse Colombo’s The Bubble Bubble Report) [Figure 1] 

As described by Hyman Minsky, prolonged financial stability encourages leverage and risk-taking. When stress emerges, this dynamic reverses abruptly. Market participants experience a liquidity squeeze, reprioritizing assets according to their moneyness—favoring those that can be converted into cash quickly and reliably without significant loss of value. 

III. The Gold–Oil Ratio and Crisis Transmission 

One way to understand gold’s muted response to current geopolitical tensions is through its relationship with oil. 

Oil represents an immediate claim on global liquidity. It is consumed, dollar-priced "Petrodollar", and highly sensitive to geopolitical disruption. Gold, by contrast, represents stored value—held primarily as protection against monetary instability. 

(Incidentally, oil is often called “black gold,” reflecting its quasi-monetary properties: global acceptability, scarcity, and embedded value as the economy’s primary energy input.)  

Figure 2

In real terms, Brent oil’s price trend appears to have formed a secular bottom in the late 1990s around the Asian Financial Crisis. (Figure 2, upper chart) 

Since then, the broader trajectory has been upward, interrupted by the 2000s commodity spike and the pandemic collapse. This pattern points to deeper structural forces: monetary expansion, chronic underinvestment in energy, and rising geopolitical risk. 

With Middle East tensions intensifying and war-economy dynamics increasingly shaping policy, the current oil shock may prove more persistent than markets expect. 

When geopolitical shocks drive oil prices sharply higher, the global financial system experiences a liquidity drain as energy-importing economies scramble for additional dollars to fund higher fuel costs—tightening financial conditions across currencies and credit markets. 

With dollar credit estimated at roughly $14 trillion—over half in debt securities (Bank of International Settlement)—this dynamic amplifies dollar demand during periods of stress. [Figure 2, lower image] 

This mechanism echoes economist Irving Fisher’s debt-deflation dynamics: rising costs and tightening collateral conditions force economic actors into a dollar funding pressure. 

In such episodes, gold does not always rise immediately. 

Instead, the gold–oil ratio compresses as oil outpaces gold. The system prioritizes settlement over preservation—dollars are needed to pay for energy before reserves can be accumulated as protection. 

Historically, this reflects the early phase of crisis transmission. Energy shocks propagate rapidly through trade balances, currencies, and funding markets, triggering collateral demand that can temporarily suppress traditional hedges. 

Only later—once liquidity pressures ease or policy responses take hold—does gold tend to reassert itself. 

IV. Mean Reversion or Regime Shift? Interpreting the Gold–Oil Ratio 

The gold–oil ratio captures the relative performance of the two commodities; recently, gold has significantly outperformed oil. Heuristically, it can be read as follows:

• High ratio: monetary stress, weak growth, disinflationary pressures
• Falling ratio (oil catching up): cyclical inflation, supply shocks, rearmament, and stronger industrial demand

If the global economy is transitioning toward a war footing—characterized by higher defense spending, rising commodity intensity, and tightening energy geopolitics—then near-term oil outperformance relative to gold is plausible. 

Even in a less oil-dependent world, geopolitical tensions can amplify supply–demand imbalances. 

That said, these forces can overlap. Inflationary pressures, financial stress, and supply shocks may coexist rather than unfold sequentially. 

Mean reversion suggests scope for oil to outperform gold, with historical anchors around ~18–22 (mean) and ~15–18 (median). However, these benchmarks may no longer be stable.

First, Goodhart’s Law applies: once the ratio becomes a widely targeted signal, its reliability deteriorates.

Second, base effects distort comparisons, especially after extreme moves. When ratios are measured off extreme starting points—such as the pandemic collapse in oil or gold’s surge during periods of monetary stress—subsequent moves can appear disproportionately large or directional. In reality, these shifts may reflect mechanical normalization from distorted bases, rather than a clean cyclical signal.

Figure 3

Third, the apparent gold-oil ratio uptrend since 2008 indicates shifting structural drivers—implying that historical mean/median benchmarks may themselves be drifting higher. (Figure 3) 

In short, while mean reversion remains a useful guide, the regime may be evolving—making static historical anchors increasingly unreliable. 

It may be that the recent compression in the gold–oil ratio reflects gold’s prior fat-tailed outperformance, with the current move representing a normalization back toward its two-decade trend channel rather than a structural reversal. 

V. Liquidity Stress: When Gold Falls First 

One of the most counterintuitive features of financial crises is that gold can weaken precisely when investors expect it to strengthen. 

This occurs because gold is not only a store of value—it is also one of the most liquid assets in global markets. 

When financial stress intensifies, institutions face margin calls, collateral demands, and funding obligations. To meet these pressures, they liquidate assets that can be sold quickly.

Gold often becomes one of those assets.

This reflects the liquidity phase described by Hyman Minsky, in which the immediate need for funding temporarily overrides longer-term investment considerations.

During this stage of a crisis, the system prioritizes cash over protection.

Gold may weaken not because its safe-haven role has disappeared, but because it remains one of the few assets capable of generating immediate liquidity.

VI. Real-Time Example: Central Banks Mobilize Gold, Turkey’s Gold Sales 

Figure 4

Recent news reports indicates that Turkey deployed gold-linked lira and foreign-exchange swaps, alongside outright sales, to support the lira during a period of market stress, as the USD/TRY exchange rate surged to successive record highs. Its gold reserves fell by roughly 50 tonnes (to 772 tonnes), the largest decline since 2018. [Figure 4] 

Such operations illustrate another dimension of gold’s role in modern reserve management. By mobilizing gold through swaps, central banks can generate immediate foreign-currency liquidity, effectively using gold as a liquidity bridge—complementing direct FX intervention rather than fully substituting for it. 

However, these tools primarily address short-term liquidity pressures rather than underlying macroeconomic imbalances. 

When markets perceive that a central bank is actively deploying finite reserve assets, these actions can signal constraint—potentially raising risk premia and intensifying pressure on the currency. 

As external buffers are drawn down, the policy path often becomes increasingly dependent on domestic liquidity provision, with central banks resorting to expansion of the monetary base to sustain market functioning. 

This dynamic highlights the reflexive nature of intervention: measures intended to stabilize markets can amplify fragilities over time through resource misallocation.

Importantly, such actions do not diminish gold’s monetary role. On the contrary, they demonstrate that gold continues to function as high-quality collateral within the global financial system during periods of stress. 

VII. Real-Time Example: Liquidity Stress in the UAE 

Recent developments in the Gulf financial system offer a contemporary illustration of these dynamics.

Figure 5

Following a sharp collapse in banking liquidity—reportedly approaching 45 percent in parts of the regional funding market—the Central Bank of the United Arab Emirates moved to inject massive amounts of liquidity into domestic banks. [Figure 5, upper diagram] 

The intervention aimed to stabilize funding conditions and prevent disruptions in the region’s financial system. 

While such measures can temporarily ease liquidity pressures, they also reveal the underlying structure of modern crises. When funding conditions tighten, policymakers must often intervene rapidly to maintain the functioning of credit markets. In the short term, these interventions can strengthen demand for dollar liquidity, particularly in economies closely tied to global energy markets. 

The result is a paradox. 

Even as geopolitical tensions rise and energy prices surge—conditions that would normally support gold—financial systems may initially prioritize liquidity stabilization over reserve accumulation. 

Gold’s subdued behavior during such episodes may therefore reflect not complacency, but temporary pressure within the global funding system. 

This dynamic is further illustrated by recent developments in the U.S. dollar. Despite shocks including the U.S.–Israel–Iran conflict, the DXY index has shown muted gains and even diverges from 2-year rate differentials. [Figure 5, lower pane] 

This suggests that dollar strength in this period is less about a classic safe-haven bid and more about liquidity demand driven by de-risking and deleveraging. 

The lack of coordinated upside in gold, bonds, and bitcoin points to collateral stress rather than a simple flight to safety. Meanwhile, interest rates themselves may reflect not only policy and war risk, but also fiscal pressures and issuance dynamics, blurring the signals that rate differentials typically provide. 

In classic safe-haven episodes, defensive assets tend to rise together. When that coordination breaks down, it often signals that markets are prioritizing liquidity and collateral access rather than portfolio hedging. 

VIII. Gold Across Monetary Regimes

Figure 6 

Gold’s long-term behavior is non-linear. Its bull markets tend to move in waves associated with epochal shifts in global monetary regimes. [Figure 6] 

The first bull cycle followed the collapse of the Bretton Woods system after the Nixon Shock and lasted until the early 1980s. This was followed by a bear market and a two-decade lull, reflecting the “salad days” of the U.S. dollar standard—characterized by the rise of globalization, the Fed’s drift toward easy-money policies, and the deepening of the dollar’s exorbitant privilege. 

A second wave emerged in the early 2000s and accelerated after the Global Financial Crisis, when central banks dramatically expanded their balance sheets in response to economic shocks. 

The current period represents a third phase—marked by a drift toward a war economy: protectionism, sanctions, and kinetic conflict—while also shaped by overlapping forces including evolving monetary policies, the weaponization of the dollar, oil and commodity dynamics, AI-driven structural uncertainty, and central bank accumulation of gold. 

These forces are gradually reshaping how gold is accumulated, traded, and—for central banks—deployed within national reserve strategies. 

IX. Conclusion: The Signal in the Silence 

Gold’s current calm should not be mistaken for irrelevance. 

Financial crises rarely begin with a clean flight to safety. Instead, they begin with liquidity stress. Funding markets tighten, institutions scramble for cash, and the most liquid assets are often sold first to meet obligations. 

In these early stages, the global financial system prioritizes settlement over preservation. Energy shocks drain dollars from the system, trade balances shift abruptly, and capital flows reprice risk across currencies and credit markets. 

This sequence helps explain why gold can appear subdued even as geopolitical tensions escalate. Oil shocks transmit stress through the real economy first, tightening liquidity before investors turn toward long-term stores of value. 

Only later—once liquidity pressures ease or policy responses expand—does gold typically reassert its defensive role. 

The current compression in the gold–oil ratio may therefore reflect not the failure of gold as a safe haven, but the timing of crisis transmission within a dollar-centric financial system. 

If the emerging environment is indeed shifting toward a more fragmented geopolitical order—characterized by energy insecurity, fiscal expansion, de-globalization, kinetic conflicts, and a gradual erosion of monetary trust—then gold’s quiet phase may represent the prelude rather than the conclusion of its cycle. 

The signal is not absent. 

It may simply be arriving later in the crisis sequence. 

Infographics: How are Silver and Gold Bullion Premiums Calculated?

A neat infographics to show the basics of silver and gold bullion from the Visual Capitalist 

The price paid for each ounce of bullion is composed of the metal’s spot price and the bullion premium.

Here’s the price composition of some common rounds:

Silver Eagle: 80% spot price / 20% bullion premium

Silver Canadian Maple Leaf: 84% spot price / 16% bullion premium

Gold Eagle: 96% spot price / 4% bullion premium

How are these bullion premiums determined? How can bullion buyers take advantage of the lowest possible premiums?

DIFFERENCE BETWEEN SPOT PRICES AND BULLION PREMIUMS

Spot Price: The current price per ounce exchanged on global commodity markets.

Bullion Premium: The additional price charged for a bullion product over its current spot price.

The calculation for bullion premiums depends on five key factors:

The current bullion market supply and demand factors.

Local, national, and global economic conditions.

The volume of bullion offered or bid upon.

The type of bullion products being sold.

The bullion seller’s objectives.

BULLION SUPPLY AND DEMAND

The total amount of supply and demand of bullion is a major influence on bullion product premiums.

Bullion dealers are businesses, and they are actively trying to balance product inventory and profitability. Too much inventory means high costs. Too little inventory means angry customers. Fluctuations in the gold and silver markets affect bullion market supply, and this impacts premium prices.

For example, in the Western hemisphere during the summer, calmer price patterns mean the bullion supply tends to increase. Sellers mark down their prices to attract market share.

During other months, silver and gold prices tend to have more volatility. This leads to increased buying and selling, and bullion sellers react accordingly. Some may mark up prices to prevent running out of inventory, or to capture profits.

ECONOMIC CONDITIONS

Depending on their size and significance, market events can affect bullion premiums local to global stages.

Examples:

In a small town with only one brick and mortar coin shop, the dealer may boost their premiums to guard against running out of inventory.

In a country like Venezuela, where the local currency is losing value at an extreme rate, locals may opt to buy bullion to preserve their wealth. This means higher premiums.

At a global level, in the event of a large crisis (similar to the 2008 Financial Crisis), it is likely premiums would increase significantly as demand spikes and options diminish.

VOLUMES BEING SOLD

Every seller incurs costs on each transaction such as time, overhead, or payment processing costs. For a seller, a single transaction for 1 oz of gold may have similar transaction costs as a 1000 oz transaction.

Therefore, transactions with higher volumes of bullion have their costs spread out. As a result, premiums tend to be higher on small volume purchases, and lower per oz on high volume buys.

FORM OF BULLION FOR SALE

As a general rule, the larger the piece of bullion is, the less the premium costs are per oz.

It costs a mint far less to make one 100 oz silver bar, vs. 100 rounds of 1 oz each.

There is also typically a significant difference in premiums between government and private mints.

For example the most popular bullion coins in the world are American Silver and Gold Eagle coins. The U.S. Mint charges a minimum of $2 oz over spot for each Silver Eagle coin and +3% over spot for each Gold Eagle coin they strike and sell to the world’s bullion dealer network.

A private company like Sunshine Minting will sell their silver rounds and bars in bulk for less than ½ the premium most government mints will sell their products for.

BULLION SELLER’S OBJECTIVES

Whether the seller is a large bullion dealer or a private individual, they will almost always want to yield the highest ask price they can get for the bullion they are selling.

That said, just because one wants to receive a large premium on the bullion they are selling, that doesn’t necessarily mean the market’s demand or willing buyers will comply.

Dealers must consider these factors when setting premiums:

Market share objectives

Competitor strategies

Price equilibrium strategy

If a dealer sets its price too high, buyers will likely choose to go to a lower priced competitor.

If a dealer sets their price too low, they could end up selling out of inventory without garnering enough profit margin to pay for the company’s overhead costs.

Dealers and sellers are both typically trying to find the price equilibrium “sweet spot” where the time required to complete a sale is minimized and the seller’s profit is maximized.

This is more difficult than it sounds, as there can be thousands of factors at play when establishing the best possible premium to charge in line with one’s overall objectives.

PRICE COMPOSITION FOR BULLION PRODUCTS

When bullion markets are experiencing normal demand, about 80-95% of silver bullion’s price discovery is comprised of the current spot price.

For gold, spot prices approximately comprise of 95-98% of gold bullion’s overall price discovery.

Now for the above presented as infographic...

Courtesy of: Visual Capitalist and JMBullion

Gold Prices Goes Backwardation, Borrowing Rates Soar to Highest Level Since 2009

Soaring gold borrowing costs in the backdrop of a reported acceleration in backwardation could most likely be symptoms of the mounting friction between Wall Street “paper” gold versus physical “real” gold

From the Economic Times (bold mine)

NEW YORK: The cost of borrowing gold surged on Tuesday to the highest level since January 2009, reflecting dwindling supplies from bullion banks after heavy liquidation and resilient demand for physical gold products.

The rates for lending out physical gold - mostly offered by bullion banks and central banks to institutional investors and manufacturers - have been near historically low levels over the past four years due to plentiful supplies.

Investors have lent out their big stockpiles of metal as prices have soared.

But that came to an abrupt end when supplies started tightening as institutional and speculative investors have unwound those long positions since the mid-April historic sell-off that has seen spot prices plunge 26 percent so far this year.

The implied one-month gold lease rate rose to 0.3 percent on Tuesday, their highest since January 2009 when investors scrambled for physical metal, seen as a safe haven investment, after Lehman Brothers collapsed.

That is up sharply from the 0.1 percent early last week. Rates have increased steadily from a negative 0.2 percent since September last year, but the gains have accelerated since April.

Even so, they are far off record highs of close to 10 percent seen in 1999 after European central banks agreed to curb gold sales and are still near historically low levels.

The recent collapse of gold prices came amidst a substantial decline in the inventories of the COMEX and gold ETFs (chart from Zero Hedge).

But in sharp contrast to Wall Street, demand for physical gold continues to be robust: Chinese imports of gold posted the second highest on record last May where gold spot premiums rose almost to "unprecedented levels", according to Mineweb.com. And even as official data on India’s imports may slow to reflect on recently imposed draconian gold trading curbs, gold smuggling has picked up according Mineweb.com. Emerging market central banks continue to substantially amass gold in April and May according to ETFTrends.com
 

What the above implies is that Wall Street Paper gold may have been depleting their inventories via lease or sale to the physical gold market. Differently said, the above represents the process of transferring physical gold from the West to the East or to the Emerging Markets. And this has been intensifying. Such dwindling of supplies in Wall Street are being ventilated on borrowing costs or on gold lease rates.

There is another very important related development. Gold prices are reportedly in accelerating backwardation—where future prices are trading below spot prices.

As the Wikipedia.org notes

A backwardation starts when the difference between the forward price and the spot price is less than the cost of carry, or when there can be no delivery arbitrage because the asset is not currently available for purchase

Backwardation has been rare for the gold-silver markets. Such backwardation is being expressed via Gold Forward Offered Rates (GOFO).

The Zero Hedge explains:

something happened that has not happened since the Lehman collapse: the 1 Month Gold Forward Offered (GOFO) rate turned negative, from 0.015% to -0.065%, for the first time in nearly 5 years, or technically since just after the Lehman bankruptcy precipitated AIG bailout in November 2011. And if one looks at the 3 Month GOFO, which also turned shockingly negative overnight from 0.05% to -0.03%, one has to go back all the way to the 1999 Washington Agreement on gold, to find the last time that particular GOFO rate was negative.

Before we get into the implications of this rather historic inversion, let's review the basics:

What is GOFO (Gold Forward Offered Rates)?

GOFO stands for Gold Forward Offered Rate. These are rates at which contributors are prepared to lend gold on a swap against US dollars. Quotes are made for 1-, 2-, 3-, 6- and 12-month periods.

Who provides the rates?

The contributors are the Market Making Members of the LBMA: The Bank of Nova Scotia–ScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA London Branch, Goldman Sachs, JP Morgan Chase Bank, Société Générale and UBS AG.

When are the rates quoted?

The means are set at 11 am London time. These are the rates shown on the LBMA website.  To show derived gold lease rates, the GOFO means are subtracted from the corresponding values of the LIBOR (London Interbank Offered Rates) US dollar means.  These rates are also available on the LBMA website.

How are the GOFO means established?

At 10.30 am London time, the Reuters page is cleared of all rates. Contributors then enter their rates for all time periods. A minimum of six contributors must enter rates in order for the means to be calculated. At 11.00 am, the mean is established for each maturity by discarding the highest and lowest quotations in each period and averaging the remaining rates.

What are some uses for GOFO means in the market?

They provide a basis for some finance and loan agreements as well as for the settlement of gold Interest Rate Swaps.

The Zero Hedge says the any of the following factors or a combination of the above could be the drivers:

• An ETF-induced repricing of paper and physical gold

• Ongoing deliverable concerns and/or shortages involving one (JPM) or more Comex gold members.

• Liquidations in the paper gold market

• A shortage of physical gold for a non-bullion bank market participant

• A major fund unwinding a futures pair trade involving at least one gold leasing leg

• An ongoing bullion bank failure with or without an associated allocated gold bank "run"

• All of the above

The answer for now is unknown. What is known is that something very abnormal, and even historic, is afoot at the nexus of the gold fractional reserve lending market.

My guess is that the ongoing tensions seen at the fractional reserve gold lending are signs of the emasculation of Wall Street’s control on gold, a spillover of the current bond market rout, and additional symptoms of the escalating strains in the financial markets.

The payback time for the gold bulls nears.

Gold Price Crash Spurs Boom in Physical Gold Markets

Apologists for inflationism have been saying in media that the plunge in gold prices marks the “end of gold’s bull market era”. 

But they hardy explain that the such quasi-crash has been brought about mainly by a selloff in paper gold rather than the physical gold: a parallel market.

Tocqueville Asset Management’s John Hathaway explains that the US centric based selling of gold paper translated to about 1 million contracts which exceeded global annual gold production by 12%—an anomaly. Well this for me smells like manipulation.

Since the selloffs, like press releases, suddenly media has synchronically been saying that central banks lost money from their reserves, which I point out in the case of the US government this has simply been untrue or disinformation, and that such selloff justifies more inflationism which has been expected of them

Yet following the price smash up, instead of prompting the public to eschew gold, the physical gold market continues to exhibit reaccelerated demand for gold worldwide.

From Bloomberg (bold mine)

Shoppers in China lined up for gold this week, while in Hong Kong they rushed to buy bracelets and in India sought jewelry for weddings not set until December. The metal’s biggest price drop in three decades provoked the clamor.

From Zaveri Bazaar in Mumbai, India’s largest bullion market, to Australia’s Perth Mint, where sales doubled from last week, consumers headed to shops after the commodity entered into a bear market last week. As gold plunged 13 percent in the two sessions through April 15, retail sales tripled across China on April 15-16, the China Gold Association reported.

The frenzy appeared in India and China, the biggest gold- consuming nations, with cultures that traditionally acquire the metal for brides, babies or strongboxes. This year’s 18 percent decline may reignite demand that last year fell for the first time in three years, with Asian investors in particular seeing the drop as a buying opportunity.

Note the term “frenzy”.

Now to the coin market

From the Wall Street Journal (bold mine)

Sales of gold and silver coins are soaring despite the sudden plunge in the price of precious metals, benefiting mints around the world and driving the cost of the collector items to well above the value of the metal they are made of.

Coins account for about a fifth of all gold purchases for investment and are often favored by retail investors because they are far cheaper than the larger bars bigger investors buy.

While traders dumped gold futures earlier this week on signs global inflation is easing and world economies are slowing, coin prices have been cushioned by high demand from gold enthusiasts who say coins hold their value over the long term.

The premium on gold coins has risen to about 5% more than the spot price of the metal, and compares with 3% at the start of the year, traders say. For silver, the premium has risen to as much as 18% from about 15% at the start of the year. Comparisons aren't precise because the coins generally contain small amounts of other metals to strengthen them, and there is typically a small premium because of manufacturing costs.

Again prices in the real world and financial paper gold reflects on a patent disconnect.

Yes central bankers have reportedly been divided too.

From another Bloomberg article:

The biggest drop in gold prices since 1983 has divided central banks on whether the metal is cheap enough to increase investment.

Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island will “favorably” examine buying more. The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves. Reserve Bank of Australia’s assistant governor said bullion has no “intrinsic value.” South Africa’s central bank governor won’t adjust its reserves policy.

Central banks own about 19 percent of all gold ever mined, and last year boosted their holdings by the most since 1964, according to the London-based World Gold Council.

In the attempt to shut down alternative currencies, and by claiming that gold isn’t a safehaven, what politicians and the inflationists want to project is that we all have NO choice but to trust governments.

This means that we ought to or should unquestionably abdicate to governments a bigger part of our savings directly via outright confiscation or indirectly by inflation for the benefit of the political class and their cronies.

 

A famous politician once said, You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.

The pushback from the gold bear raid as seen in the physical gold market implies that the governments and their apologists cannot fool all the people all the time.

Updated to add: The Zero Hedge points out that the US Mint sold a record 63,500 ounces of gold in ONE day.

According to today's data from the US Mint, a record 63,500 ounces, or a whopping 2 tons, of gold were reported sold on April 17th alone, bringing the total sales for the month to a whopping 147,000 ounces or more than the previous two months combined with just half of the month gone.

Parallel universe in Gold: Physical versus Paper gold

Two interesting outlooks from the two day 14% massacre on gold prices

1. Falling gold prices equals bigger demand for physical gold in India

From Outlook India

With gold prices tumbling to a 15-month low today, retailers are witnessing a surge in demand and expect up to 50 per cent spike in sales volume in this marriage season.

They are also expecting prices to fall further to around Rs 25,000 per 10 grams in the immediate short-term.

"Over the weekend, demand has picked up and there is surge in footfalls. As such, demand for jewellery has been up since Holi due to the upcoming wedding season. However, the recent plunge in prices have added to the momentum.

"We are expecting a whopping 50 per cent growth in sales volume during this season over the same period last year," Vice-Chairman of the Mumbai Jewellers Association Kumar Jain told PTI.

Jain, who also owns Umedmal Tilokchand Zaveri retail chain, said jewellers are expecting a good season on the back of expectations that the prices are likely to tumble further to around Rs 25,000 due to global cues.

2. Has the selling of paper gold been far more than the actual inventories?

From Mark Byrne of Goldcore (via Zero Hedge) [bold original]

Gold futures with a value of over 400 tonnes were sold in hours and this is equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions.

It may again be the case that bullion banks with large concentrated short positions are manipulating the price lower as has long been alleged by the Gold Anti Trust Action Committee (GATA). The motive would be both to profit and also to allow them to close out their significant short positions at more advantageous prices and possibly even go long in anticipation of higher prices in the coming weeks.

Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories.

The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.

Comex gold bullion inventories have slumped 17% already in 2013, falling to just 286.6 metric tons of actual metal on April 11, the lowest since September 2009.

This means that futures speculators on Friday sold a significant amount of more paper gold, in an hour or two, then the entire COMEX physical gold bullion inventories.

Sell on banksters and governments! This should give the physical gold market (or the public) more space or opportunities to accumulate.

Is the US Federal Reserve Indirectly Putting Down Gold Prices?

Have US Federal Reserve officials been indirectly trying to take down gold prices?

In barely 2 weeks of 2013, gold prices attempted twice to move higher (See ellipses). One peaked during New Year just right after the fiscal cliff deal. The second was during Thursday of this week.

However, both gains had been cut short. This appears coincidentally timed with two occasions where Fed communications (FOMC minutes) had been released and when Fed officials went on air expressing doubts over QE 4.0.

The first came with the announcement of the FOMC minutes which revealed of growing dissension over unlimited asset purchases, a day after the fiscal deal.  I earlier wrote that this signifies another of the Fed’s serial Poker bluff. 

Last night, while switching channel after watching another TV program, I happen to stumble upon Federal Reserve Bank of Philadelphia President Charles Plosser’s Bloomberg interview, where he hinted of his bias against pursuing more balance sheet expansion. If memory serves me right, prices of gold was then trading at $1,669-1,670. Bloomberg seem to have featured this interview in a follow up article

Then I learned today that other Fed officials featured by mainstream outlets also covered the FED hawks.

And in both occasions where hawkish sentiments by FED officials were aired, the earlier gains scored by gold prices had nearly been erased.

Gold has been marginally up this week.

Considering that FED employs communication strategies to influence market behavior called as “signaling channel”, my suspicion is that this has been part of the implicit tactic to mute the public’s inflation expectations, expressed via gold prices.

Nonetheless, I expect such mind manipulation ploys to be ephemeral.

That’s because as I pointed out during my last stock market commentary for 2012

Evidence suggest that gold prices may have departed from real world activities. Sales of physical gold have exploded to record highs. Moreover central bank buying has been gathering steam, which seems on path to hit new highs this year (500 tons), along with record ETF gold holdings at 2,627 tons.

It seems that only after a month, we are getting more proof on this

In the US, sales of physical gold and silver has been exploding: The US mint reports 57,000 gold ounce sales for the first two days of the year and sale of silver coins tripled from December.

In the meantime, India’s gold imports reportedly surged amidst fears that the Indian government may continue to act to suppress demand for gold. According to Mineweb.com, after two earlier hikes of import duties, gold smuggling has also reached new levels. Smuggling is a typical reaction to prohibitions or quasi-prohibitions edicts via tax increases.

In addition, central bank gold buying have also been ramping up. According to International Business Times

In the third quarter, according to the World Gold Council (WGC), the world's central banks bought a total 97.6 metric tons of gold.

In six out of the last seven quarters, central bank demand has been around 100 metric tons, which is a sharp increase from as recently as 2010, the bank said in a statement, adding that through the third quarter of this year, total central bank buying was up 9 percent.

Moreover, China's government via the PBoC reportedly will increase gold acquisition to diversify from her foreign exchange holdings.

The China Daily notes,

China may decide to increase the percentage of gold holdings in its monetary reserves in the next few years, said the report, an analysis of the world monetary system commissioned by the World Gold Council.

Demand for gold is likely to rise amid the uncertainty about the stability of the US dollar and the euro, the main assets held by central banks and sovereign funds, it added.

China almost doubled its gold reserves in the last five years. The country had holdings of 1,054metric tons in July 2012 and is now the sixth-largest holder of monetary gold.

In 2011, gold accounted for 14.4 percent of the world's total monetary reserves.

In a country-by-country comparison, the figure was 1.6 percent in China, while it was 74.5percent in the United States, 71.4 percent in Germany and 71.1 percent in France, according to data from the World Gold Council and the International Monetary Fund.

China holds the world's largest foreign exchange reserves, which were worth more than $3.31trillion by the end of 2012, according to figures from the People's Bank of China, the country's central bank.

China has been approaching gold with “talk the talk” as November gold imports have doubled from October.

According to Zero Hedge, (italics original)

at 90.8 tons, this was the second highest gross import number of 2012, double the 47 tons imported in October (which many saw,incorrectly, as an indication of China's waning interest in the yellow metal), and brings the Year to Date total to a massive 720 tons of gold through November. If last year is any indication, the December total will be roughly the same amount, and will bring the total 2012 import amount to over 800 tons, double the 392.6 tons imported in 2011.

Meanwhile, ETF holdings of gold remain at record levels

 

According to my digital financial chronicle,

Exchange traded funds (ETFs), with gold as the underlying asset, have contributed to its prices. Institutional and retail inflows into global gold ETFs are at record levels. ETF holdings have been a key indicator of price movements in the recent years. Reports suggest that at November end last year ETF holdings were at an all-time high of over $150 billion. Till November, holdings in ETFs had risen by 12 per cent to 2,630 tonnes.

In short, the strings of record highs from various activities such as buying of physical gold, ETF holdings, record imports of China and India (two largest gold consumers) and lastly central bank buying simply doesn’t square with current consolidation phase.

Interventions to suppress gold prices are likely to have short term impact.