In a time of extreme uncertainty, one thing is clear...

Written by Gerardo Del Real
Posted March 30, 2020

Back on July 8, 2019, I wrote:

"The global monetary system needs to be reformed, I believe there will be a Bretton Woods-style meeting in the next couple of years, one that will be forced upon us by mathematics.

"Neither the current global debt nor the negative interest rate orgy that’s going on is sustainable, but power never relinquishes power on its own, it is always forced to.

"Whether it’s Japan, Europe, or here in the U.S., the dominoes are starting to tip over.

"Today it’s Deutsche, tomorrow it’ll be someone else until soon it’s an entire region that implodes and needs “restructuring.”

"Gold will see new real highs between $3,000-$5,000 within the next 7 to 10 years, but be careful what you wish for because the pain that comes with that will be severe for those not positioned.”

$100 to $200 daily moves in the gold price are here and appear to be here for good.

The combination of unlimited legal counterfeiting by central banks around the globe, mixed with refiners shutting down at a time of high demand, is creating dislocations in the gold space that may prove incredibly consequential.

Last week, spreads between bid/ask in the spot market reached levels I’d never seen before. Ditto for spot vs. futures contracts one month out.

Remember when dislocations started showing up in the repo market? A few months later we have multitrillion-dollar band-aids being applied by the Fed in an attempt to “fix” the dislocations.

So what led to the glitch in the matrix?

The very simple version is there isn’t any gold available — in meaningful quantities — at anything close to the spot price.

I spoke with Van Simmons, partner and president of David Hall Rare Coins (best in the business and in a lot of cases created and reinvented the coin business), who confirmed and explained what he’s hearing about supply constraints in the gold market.

What he’s hearing and seeing is significant because if someone like Van isn’t able to buy the quantities of gold he’d like to purchase without paying a significant premium, then the spot price we see quoted is really insignificant and the real price is much higher.

The spot price will catch up — not without volatility — and there is the real potential that the paper market is structurally vulnerable in ways that will be exposed soon.

As Bloomberg reported last week:

“This isn’t anything that we’ve seen in a generation because refiners never had to shutdown — not in war, not in the great financial crisis, not in natural disasters,” Tai Wong, the head of metals derivatives trading at BMO Capital markets, said on Tuesday “It’s never happened. And it happened astonishingly rapidly.”

The article goes on to mention:

"The concerns over supply and the rush on gold purchases has sent futures in New York skyrocketing to the highest premium over spot gold in London in decades and underscores how desperate investors are to find a safe haven amid the market tumult brought on by the virus.

"The last time the New York-London spread was this massive was in the 1980s when the Hunt brothers attempted to corner the silver market and sent gold futures soaring to a high of $850 an ounce, a record it didn’t surpass for 25 years.”

Mines are being shut down, portfolios are being rebalanced, funds are being forced to become active investors again and they’re starting to add gold to those portfolios.

In a time of extreme uncertainty, one thing is clear, gold is headed higher.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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