Will Coins And Bars Save Gold?

There is a disconnection between paper and physical gold prices and the former has to catch up with the latter eventually. Myth or fact? We invite you to read our today’s article about demand for gold coins and bars and find out whether it will save the yellow metal.

The best stories are about the conflict between good and evil, or light and dark. In the precious metals market, we also have such a narrative, or actually several variations on the theme. But one of the most popular thread is the ‘disconnection’ between paper and physical gold. The characters are clearly identified: paper market is the powerful Empire while the physical gold is Rebellion, which heroically fights a stronger and more vicious opponent.

The battle is about gold and silver. The paper market suppresses their prices by malicious use of derivatives, mainly futures, and other techniques of manipulation. Luckily for the Rebellion, these actions are doomed to failure. When the fraud is exposed and the paper gold market collapses under its own weight, ‘real’ market forces come to the fore, pushing the gold prices eventually back to the fundamental level which would be reflected in the pure physical price market. In other words, after being manipulated for years, the ‘true’ price of gold will surface.

According to this narrative, the declines in the gold prices are practically always seen as something suspicious or even fake. Hence, many investors do not react adequately to market changes, but wait for the “imminent” rebound, missing many opportunities to gain.

The fact that the prices of bullion coins or bars typically lag behind the spot price only reinforces the belief in the disconnection between paper and physical markets. It’s true that prices of gold bars and coins are above the spot price, but this is due to premium for refining or minting and selling to retail investors. Bullion dealers quote prices higher than London fix, since they bear higher costs than wholesale players and add some markup to make a profit.

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If you enjoyed the above analysis and would you like to know more about the most important macroeconomic factors influencing the U.S. dollar value and the price of gold, we invite you to read the ...

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