On Friday, April 12th and Monday, April 15th, the price of gold plunged over $200. It appears that the Powers That Be (PTB) intentionally orchestrated the “April Plunge” in order to break gold investors’ psychological back. If that was the intent, the “Plunge” failed miserably. Confidence in gold increased. Global demand exploded as buyers reportedly outnumbered sellers by as much as 50 to 1.
Perhaps the biggest blow to the PTB was the growing awareness that the prices of “paper gold” (gold futures contracts) and of physical gold were not identical. We heard reports of physical gold being sold for $30 “premiums” over the price of paper gold in some places, and even $300 “premiums” in Japan. These increased prices for physical gold weren’t simply “premiums”—they were evidence that a basic presumption on which paper-gold markets have previously relied (that the price of paper gold was and would always be equivalent to the price of physical gold) had been refuted.
In retrospect, it seems so obvious that the prices of paper and physical gold should be different, that we’re left to wonder How did we ever come to believe that the two prices were equivalent in the first place?
The answer to that mystery is redemption.
As long as paper gold (futures contracts) could be purchased with paper dollars but redeemed with physical gold, paper gold (futures contracts) were “good as (physical) gold” and their prices were thought to be identical. But once evidence began to mount that paper gold could not be redeemed with physical gold, their prices began to diverge.