Currently Researching Paper Gold

Sorry for being slow answering comments these last few days. I will do so this weekend.

I have been distracted researching an important topic: Paper gold.


With gold now hitting $1,000 this Friday, I think we are soon heading for a "run on paper gold" so to speak. In other words, with gold prices spiraling higher, investors will begin to worry whether or not their gold ETF/certificates of (un)allocated gold/futures contract might not be backed by gold. After all, the higher gold prices go, the less likely those on the short side of COMEX contracts will be able to deliver.

As investor begin to redeem their paper gold for the real physical thing, some paper gold market (probably the COMEX) will default and fail to deliver. The instant this happens, all forms paper gold will come under intense scrutiny, with a large surge in redemption request. Paper gold not backed or redeemable for the real thing will collapse.

So right now I am focusing on investments like the GLD, whose gold isn't audited and makes me nervous.


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6 Responses to Currently Researching Paper Gold

  1. Yohay says:

    The safest thing to do it to buy real gold and hide it under the bed.
    Looks safer than buying paper gold in particular, or holding any other assets in banks...

  2. Peter D says:

    What will happen to the price of "real gold" if paper gold crashes?

  3. Robert says:

    If gold fever steps up it may bring a lot of new suckers into paper gold, allowing the banks a chance to offload their losses.

  4. Eric

    fyi - from interview with Marc Gugerli (CommodityOnline):

    "You could buy the Gold ETF from Zurich Kantonalbank (ZKB) which is traded at the Swiss Stock Exchange, which is the only ETF available which is fully covered by physical Gold and if needed you can exercise and get the Gold delivered within 10 days. There are similar products available but as with bank metal depository accounts you run the risk that you have to wait a long time until you get your gold. Very important: Reduce to a maximum the failure of exercise, counterparty and depository risk. "

    Source
    http://www.commodityonline.com/news/Paper-gold-market-will-crash-at-Comex-14981-3-1.html

  5. Numonic says:

    "What will happen to the price of "real gold" if paper gold crashes?
    "

    Gold on the stock market will meet the price of the DOW(probably at $5000) and the market will crash. I believe this will happen before the year ends. I believe within the next couple months we will see hundred dollar moves upward in gold and gradually in the remaining months of the year it will become thousand dollar moves every other month and before the year ends the DOW and gold will meet and thats when the Stock Market will be shut down. The rising consumer prices due to the rising borrowing costs is what will prompt more people to run to gold/silver. Those higher prices will start to appear next month(March 09) and will increase higher and higher every week and before the year ends prices will be rediculously high meanwhile premiums on physical bullion will continue to rise as more and more people look for something to protect them from the rising consumer prices. Eventually like in Zimbabwe people will stop accepting paper and start to only accept physical gold/silver for goods. The rise in prices will cause people to produce more and eventually production will improve the economy as gold/silver is returned to it's monetary status. Gradually standards of living will improve. The road to a better standard of living will be bumpy but we'll make it with the help of gold/silver.

    My timing may be off but this will all happen for sure.

  6. Yohay said...
    The safest thing to do it to buy real gold and hide it under the bed.
    Looks safer than buying paper gold in particular, or holding any other assets in banks...

    Agreed

    ---------

    Peter D said...
    What will happen to the price of "real gold" if paper gold crashes?

    Real gold and anything investment backed by real gold will soar.

    ---------

    Robert said...
    If gold fever steps up it may bring a lot of new suckers into paper gold, allowing the banks a chance to offload their losses.

    Assuming there isn't any defaults in the COMEX and such.

    ---------

    VicktorCapitalist said...
    fyi - from interview with Marc Gugerli (CommodityOnline):

    Thanks, I know about the Swiss ETFs that are redeemable by gold. I recommended one of them last year.

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