Retail Holders Sell Their Gold – Precious Metals Supply and Demand

Acting-Man

A Myriad of Reasons to Buy Gold – But Small Holders are Selling

Big moves occurred in the prices of the metals last week, with that of gold up $57 and silver $0.77. We have now reached a price of gold (if not silver) not seen since 2013, when it was on the way down. What is causing this sudden spike in price and renewed interest in gold?

A well-known depiction of investor emotions over a complete market cycle. Interestingly, it appears as though many retail gold holders who held on to their gold through the 2011-2015 bear market are now selling, just as the market has reached what is normally considered to be the “hope” stage. Ironically, this is actually good news from a contrarian perspective. [PT]

Well, first the bad news. According to every retail dealer with whom we have spoken, worldwide, the rising price has generated lots of customer selling. At retail, long-suffering gold holders are taking advantage of the price to unload. Perhaps they’re thinking, “whew! I can finally get out!” We don’t bring this up to blame them, but to point out that retail is a countervailing force. They are certainly not driving the price action.

Those who follow the basis have been seeing that there is not a corresponding rise in the basis, either. When leveraged speculators buy futures, they push up the price of a contract for future delivery relative to spot. This is what the basis spread measures. Or would be measuring, if this price move was the same as all other moves up in the last six years.

Evidently, we’re not at this stage just yet…  [PT]

I had short debate on Twitter with a well-known goldbug of the subjectivist persuasion. He was conceding that gold has value only because of the same kind of faith as people have in fiat currencies or bitcoin. As regular readers know, we have argued that even fiat currencies are not held up by faith. They are supported by the struggles of debtors. And definitely not gold.

Gold is not held up by faith, neither of the subjectivist what-if-people-stopped-having-faith variety, nor of the “God said” type, which was the only alternative of which he could conceive.

People value gold because there are times when they wish not to be a creditor. When there is no counterparty to whom they wish to lend (yes, to hold a dollar is to be a creditor to the Fed). With possible war with Iran, and trade war with China, now looks to be such a time.

Oh, and adding fuel to the fire, interest on a vast-and-growing pile of bonds is negative. You pay the borrower to use your cash. And at the end, they return less than you lent. Even in the dollar, the rate of interest is now much lower than it had been recently.

Rising credit risk and falling compensation to reward one for taking it? Perhaps these factors explain why …read more

Source:: Acting Man