The Fork In The Road



The suspense is painful… like being trapped in some kind of interminable Vulcan Death Grip, or something…

  • Western paper traders won’t bid up the paper (spot unallocated, GLD shares, futures, forwards, options, XAUUSD longs, swaps, leases, whatever) gold $price, while their technical analysis tells them gold’s in a bear market and headed for the S bend (or even just circling the bowl).
  • Others buy physical, and they much prefer to do that on price weakness… but if the strength seems sustained then they seem to buy a little anyway, perhaps grudgingly, but certainly less so (at least by weight, if not $cost).
  • The mines can’t feed more physical through the system reserves stream, while the $price is too weak and their costs to bring to market haven’t fallen at least as hard.

So we either need to see:

  • something to make the paper traders think “gold” has escaped from the bear, so that (a) the Eastern physical buyers drain less weight from the system reserves, and (b) the miners can increase the physical coming through the market (i.e.: to see the quiet run on the fractionally-reserved gold banking system’s reserves stopped, even reversed).


  • the physical system reserves will finally fall below a critical level, and the system will break when the next call comes for allocation or delivery.

Ultimately, either the price “goes up enough from here” to keep the wheels on the present system, meaning the physical bullion and paper derivative prices of gold continue trading in lock step because the markets perceive them as fungible, or the wheels fall off because the physical reserves, underpinning confidence in the fungibility across all these various products, were stripped out at bargain basement prices by unsophisticated-but-savvy value seekers. Leaving, quite obviously to all, only the prospect of cash settlement for all of these paper derivative products… yes, including fully-paid-up spot unallocated credits in the bullion bankers’ books and XAUwhatever longs in the, somewhat huge, forex market.

Will the market then proceed to bid up the price of these paper derivative products, in lock step with the price of physical bullion? Or are they more likely to avoid the foul-smelling paper that they find trying to make its way back through the S bend, while instead embracing the real deal?


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