The case for gold is incredibly complex, but becoming increasingly clear.
We watch every day as the price of gold fluctuates, currently (April 2016) around $1230 an ounce, which is a price at which many mines would actually struggle to produce gold, and that just doesn’t make any sense whatsoever.
The average cost of producing an ounce of gold currently runs at $1200 an ounce, so it’s pretty clear that only the most efficient mines can sustain, whilst the price of gold is being managed at a level way below its true intrinsic value.
The Case For Gold
The challenge is that the daily spot price for gold does not actually represent the true value of tangible physical gold.
Gold is a commodity and, as such, its value should be based on economics ie the cost of extracting it from the ground and the relationship between the amount of gold available and the demand from people to own gold (Supply and Demand).
However this is not the case.
Today’s spot price for gold is a strange amalgam based on the supply and demand not just for physical gold, but for a combination of both physical gold, which is in short supply, and “paper” gold, which is abundant.
Latest estimates suggest that for every ounce of physical gold, there are 300 ounces of “paper” gold being traded.
This is madness, it’s a house of cards that will collapse. The only question, is when.
What this means is that the spot price we see every day for gold is in no way truly representative of the value of physical gold.
In simple terms the price we see every day, which should represent the price of a rare and expensive to mine physical commodity, is actually being determined by a clique of traders who first create a synthetic or derivative version of gold, and then trade that derivative amongst themselves as if it were the real deal, without legislative oversight of any kind.
This is creating a false market in which the overwhelming supply of paper gold is totally masking the shortage of supply of actual physical gold.
I suspect that the day when the “paper” trading aspect of the gold market will be removed is not as far away as many might think.
What is happening in the East, with China and Russia actively building their gold reserves, suggests that changes in the World order (Hugo Salinas Price) are imminent.
When those changes happen, then we will see what the price of physical gold truly should be when it is based on the underlying market factors of supply and demand.
China has the world’s largest population (1.4 billion), followed by India (1.3 billion). China has for a long time been vocal in it’s dislike of its economy being dependent upon the strength of the US Dollar, and is determined to see changes taking place.
Whilst the US insists on trashing the price of gold, as if to say that the Dollar is and will remain the World’s supreme currency till the end of time, China is purchasing huge amounts of gold and saying nothing.
As of 1st October, 2016 the the Chinese Yuan will become a Reserve Currency approved by the IMF. When that happens, China will have less need for its current pile of Reserves in US Dollars. As China liquidates a portion of its Reserves, guess what China is going to buy with the Dollars it receives for its Bonds?
The Chinese are not prepared to be beholden to the United States. China will take whichever measures offer hope to the Chinese.
China will break away and state its terms. And the terms will be: GOLD. The rest of the World will follow.