Gold News

Gold Market Disconnect

Gold Futures and silver derivatives are getting squashed, and yet the physical metals are rising...

LATE IN 2O02, Dr. Ben Bernanke remarked that the private Federal Reserve Bank might consider "unconventional measures" to stave off deflationary pressures, writes Peter Spina of GoldSeek.

Tuesday this week, just such a new radical measure was announced which invokes depression-era emergency powers to allow the Fed to buy massive amounts of short-term debt (known as "commercial paper"), a roughly $1.6 to $1.7 trillion market of which around $1.3 trillion worth of private-sector debts would qualify.

By buying unsecured debt instruments, we are approaching a modern-day Weimar Republic set-up which will lead to a further demise of the US Dollar by more aggressive monetization of debt. The digital printing presses around the world are injecting incredible liquidity into the system as the financial system continues to crumble.

Given the critical state of the global financial situation, the paper gold and silver prices in the futures market remain at very depressed levels. The true physical markets are showing very high premiums over these derivative products. I strongly believe that physical demand for gold and silver will very shortly set itself free from the paper market pricing structure resulting in an explosive move higher. A growing number of people are starting to accept this likely outcome.

Last night on CNBC, Jurg Kiener – CEO of Swiss Asia Capital – also makes a mention of the upcoming failure of the paper gold markets: "We have a two-tier market, paper on Wall Street where the bankers continue to gamble like with everything else and the physical market where the physical price is real hot and people cannot get it."

What does this mean? "Owning gold is the best thing you can have. This will put pressure on the paper market, in the LME and COMEX...and we are very close...what we will see are the paper contracts on precious metals defaulting. And with that we will get a massive price increase."

So when the paper market defaults, what kind of price spike will we see?

"At least double the price in a very short period of time," believes Mr. Kiener. I cannot add anything further to these comments, since his sentiments closely echo mine.

The paper markets representing gold and silver are becoming fraudulent in their pricing abilities. The true market forces will prevail over this counterfeit marketplace. We are witnessing once in a century, or perhaps longer, financial event where gold and silver offer the only real protection.

The US Treasury debt market may eventually succumb to this crisis as well at which time gold and silver would move to levels difficult to imagine today as it returns to its true historical attribute as currency.

Peter Spina is the founder and editor-in-chief of leading precious-metal analysis sites GoldSeek and SilverSeek, and also one-half of the highly respected team at GoldForecaster. An active investor in gold and silver since the mid-1990s, as well as high-potential mining stocks, Peter frequently appears on major US media including MarketWatch, Reuters, and

See the full archive of Peter Spina articles.

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