PMS: Precious Metals Squeeze?
George Ure's Urban Survival Blog
Feb 11, 2016
http://bit.ly/1QYAsgs

[snip]

Has it occurred to anyone besides me that (WE) are in many ways set up for a perfect paper-metals squeeze?

Let me explain: I have seen estimates that there is as much as 100:1 coverage (printed paper promising gold or equivalent in cash) for every ounce of physical gold out there.

Even if you discount this deeply, you still can see a situation where the paper-hangars might was to get a little closer in terms of marking their paper to market.

So here is this morning’s mental exercise:

Pretend for a moment that we have one investor who had purchased a piece of paper that claims to be backed by gold. Our paper gold owner may have – and this is being terribly conservative here – nine players who will sell an ounce of paper gold and there could be one player who has the honest-to-God physical.

Which one does he buy? I would hope the physical since we have been telling readers forever that if you buy paper gold, you aren’t getting the gold, you are getting a piece of paper with words on it. Oh, sure, gold may be one of the words but the underlying is, well, emphasis on the second half of that word, if that’s not too obscure for this hour.

Even so, the gold may not have gone anywhere in price, because there was only the one buyer.

Well, suppose now that the paper gold people decide to sell a lot more paper. And maybe they are going out to buy some commodities to hedge.

The very first thing they find is that no one wants to sell physical gold. Oh, drat.

At one point this morning the price of gold was up 3.52%. And for a one day move, a bump in gold of more than FORTY BUCKS begins to get our attention.

If you aren’t a long-term subscriber to our Peoplenomics.com newsletter, you may have missed our many discussions on relative value.

I won’t give you the whole rhyme and verse about how the numbers work out in the long term, but remember in 2001, Ures truly bought physical gold when it was $273 per ounce. This was August of 2001.

How has our lone gold coin done since back then?

Well, since we bought it, the price of the yeller dog is up 4.53 times.

Now, the S&P closed that day at 1,133.58 – this was before 9/11, remember.

Now, let’s say that the S&P miraculously closes today right at the Wednesday close. That index was up how much since the day I bought that lone gold coin? 1.634 times.

But even this doesn’t give us the absolute by-God reality of purchasing power because so far we have not even tried to consider the impact of inflation.