Will Gold and Silver Paper Prices Fail Soon?

The vastly unknown subject of excessive paper gold price discovery leverage was mentioned in mainstream financial media this past week as the idea of investing in 'real assets' becomes more mainstream.

The number of paper gold options, futures, and derivatives is likely still triple digits versus investment-grade gold bullion in 2022. Various illustrations and outright admissions over the years point to the excessive amounts of paper gold trading versus annual gold mining and physical gold market size.

In 2013, the Royal Bank of India, the nation's central bank, admitted that the leverage in the LBMA, COMEX, and 1 oz gold spot price market was at then 92.

Today's literal price of gold is still often determined by the front-month COMEX gold futures contract. The signal that the current polite gold price discovery system is beginning to fall apart as more and more physical gold bullion buyers around the world demand direct delivery will be an exponential move in the spot price of gold and difficulty in finding physical gold bullion in deliverable size priced anywhere reasonable near the then spot gold price.

The nation of India bought more gold bullion tonnage this week and has increased its physical gold reserves by +27% in the last two years. 

Egypt added 44 metric tonnes of gold bullion recently.

Turkey has also been a big official gold bullion buyer thus far in 2022.

This week's holiday-shortened trading week for silver and gold spot prices was positive in price action.

The silver spot price appears to be close to $25.50 oz.

The gold spot price will likely finish this week above $1970 oz.

The gold-silver ratio tightened towards 77 for this holiday-shortened trading week.

This week another half-truth price inflation increase was admitted by the US government's Bureau of Labor and Statistics (BLS).

Claims that US price inflation has risen over 8.5% over the past year while the BLS ignores the fact that 1/3rd of their inflation index is enormously understating rising US rents up 17% y/y and US home prices up 19% over the past year.

Actual price inflation using pre-1980 measurement methods are beyond the mid-teens now.

Basic food staples are certainly seeing price increases in the percentage of teens over the last 12 months.

Real interest rates have never been this nominally negative throughout this full fiat currency era, signaling things are very sick with this fiat financial system.

Given massive price inflation growing globally, the bond market thus far in 2022 has had one of its worst performances to kick off a year on record.

The ongoing drain of underlying COMEX silver bullion holdings continues with the silver spot price still caught in a near two-year sideways price consolidation.

As the spot gold price appears poised to make a run at $2,000 oz and eventual new record price highs to come, the current silver spot price has a long way to go before considering it relatively expensive.

If you are looking for an inexpensive store of value, silver remains perhaps the best long-term bet.

As the prices of virtually all commodities and things we need for our modern way of life have increased over the past year, the spot silver market has consolidated sideways, priced at a relative discount still today.

This silver vs. commodity chart by Tavi Costa illustrates how much potential catch-up the silver spot price has to do to keep pace with commodity price ramps of late. Even if the white silver spot price line catches that red line, it still means silver has not yet reached its seemingly ancient record price high from 42 years ago in early 1980 of $50 oz.

We again have another base metal traded on the London Metals Exchange, threatening to short squeeze as inventory levels are running out. It appears zinc is now readying to do an LME nickel price ramp.

While about 70% of all new Silver ore mined comes as a byproduct from zinc, copper, and gold mining.

All three aforementioned latter metals are now trading near record high price levels.

Look at the charts spanning over fifty years in price action for zinc, copper, and gold.

They are all at or near new nominal record price high levels already.

Yet the relatively depressed silver spot price is still near -50% below its seemingly ancient $50 oz record price high.

This is typical of secular bullion bull markets in gold and silver. Gold leads in the eventual mania phase, and only later does silver climb an exponential price wall and briefly outperform gold.

It remains hard not to imagine sooner than later; we will see a similar situation where $25 oz spot silver will be seen as a relatively low price point today versus other recently ramping commodity price points.

That is all for this week's SD Bullion market update.

We want to wish everyone a safe and happy holiday weekend.

And as always, take great care of yourselves and those you love.

← Previous Next →
James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...