Most of us have seen “Westerns” that included some grizzled old prospector scolding the new-comers for mistaking iron pyrite (“fools’ gold”) for real gold. How could people be so dumb as to confuse iron pyrite with physical gold, hmm?
And yet, today, virtually every American who invests in gold is just as likely to mistake “fools’ gold” for physical gold. Except, today, our “fools’ gold” isn’t iron pyrite—it’s paper gold; it’s the paper promises to pay in physical gold that are accepted on COMEX rather than real, physical gold.
In fact, because COMEX reportedly sells about 60 “ounces” of paper gold for every ounce of physical gold, we might reasonably refer to COMEX as the world’s preeminent market for fool’s gold. Those who believe that “paper gold” is “as good as gold” are fools.
Andy Hoffman recently wrote a few words on the difference between physical and paper (fools’) gold:
“. . . suggesting COMEX prices may decline, ignores the fact that this is no longer a dollar-centric world; as it’s entirely possible that amidst falling paper prices in the States (due to additional manipulation, of course), we’ll simultaneously witness soaring prices overseas; as is the case currently in India, where premiums have surged above 20%, creating significant physical shortages. To wit, gold priced in dollars, Euros, and Pounds is roughly 35% below its all-time highs; but in Rupees, it’s just 20% below its high–and in Yen, barely 10%.”
Q: How is it possible that we don’t have global price equivalence for physical gold? Sure, prices might vary by a percent or two between different continents.
Q: But how can prices (as measured in fiat dollars) for physical gold be 20% higher in India and 10% higher in Japan than the price of paper gold in the US?
A1: Market manipulation.
A2: The prices of paper gold and physical gold are beginning to diverge in global markets as the world begins to see the difference between fool’s/paper gold and physical gold. The world is recognizing that the price of paper (fool’s) gold (as determined in American and British markets) is no longer an accurate reflection of the price of physical gold on international markets. Inevitably, that recognition will spread to the US.
In fact, that recognition is already here insofar as many gold investors who were previously content to accept payment for their investments in the form of paper gold are now demanding to take delivery in physical gold.
What’s that mean?
It means that investors increasingly understand that $1 million in physical gold is worth far more than $1 million in paper (fool’s) gold.
As the prices of paper/fool’s and physical gold continue to diverge, the price of paper gold will be seen for what it is: a derivative that’s every bit as speculative as investing in Iraqi currency. Paper gold and paper gold markets (like COMEX) will become as increasingly disparaged and irrelevant as iron pyrite. Physical gold will be become increasingly valuable and controlling.
Andy Hoffman continues:
“In other words, global gold fundamentals are decidedly not focused on a nation with just 5% of the world’s population and demand, no matter how powerful its fraudulent commodity exchanges appear to be. As it is, the COMEX is nearly “sold out” of registered gold inventory, whilst the Shanghai Exchange has delivered more physical gold in the past four years than is supposedly held at Fort Knox. In other words, it’s only a matter of time before pricing is dictated in Shanghai, not New York or London.”
More, it’s only a matter of time before pricing is determined by physical gold rather than paper (fool’s) gold. When that time arrives, the price of physical gold will be freed from the price manipulation that’s inherent and easily achieved with paper (fool’s) gold. The price of real gold will begin to soar. Simultaneously, those who’ve invested in paper gold will realize they’ve played to fool and will suffer the fool’s penalty: poverty.