Screen Traded Fiat Gold Could Get a Violent Wake-Up Call
Tuesday, 29 October 2013
In the Financial Times, veteran financial journalist and gold watcher, John Dizard noted the increasing strain in the physical gold market and detailed how that should lead to much higher gold prices.
“Something is unsettling the animals in the forest of the gold market. Usually there is a chorus of chirrups and squeaks that are significant, momentarily, for one species or another, such as a few cents of arbitrage between Zurich and London, or a dollar-an-ounce rise in India caused by a dealer’s near insolvency. Then the noise settles down to the murmur of wind through the trees
However, the continuing high level of premiums for physical gold over the kinds you can trade on a screen suggests that the next move in the major gold indices or the various exchange traded funds could be discontinuous and dramatic. It would be much better for the financial world if gold were just bumping along, with only enough volatility and liquidity to keep a few dealers’ lights on. That would mean electronic or paper assets have retained their essential credibility with the public …”
“This could turn into a very violent wake-up call for [screen-traded gold]. People talk about ‘fiat currencies’, but we also have ‘fiat gold.’ Volatility is too cheap right now.”
Taken together, this collection of persistent microeconomic signals in gold could flag macro trouble to come. These noises worried me in August. They worry me more now.
Dizard’s article, ‘Strange gofo cry heralds trouble for gold’ in the Financial Times can be read here.
He has previously warned that ETF gold holdings and central bank gold reserves may be being lent to bullion banks, who then re lend that gold into the market.