By Addisson Wiggins
“Zero
Hour” is what I call the moment when the price of real, physical gold
starts to break away from the quoted price on the commodities exchanges.
That is, the “physical price” becomes much higher than the “paper
price” on CNBC’s ticker. The catalyst would likely be when a major
metals exchange defaults on a gold or silver contract, settling in cash,
instead of metal.
To
be clear, this did not take place when gold’s paper price plunged $150
in only two trading days, Friday, April 12, and Monday, April 15. What
happened after that plunge hints at what the aftermath of Zero Hour
would look like. The Chinese Gold and Silver Exchange nearly ran out of
bullion on Friday, April 19. There were reports of a “massive wave of
physical gold buying” in Dubai, and monthly sales of U.S. Gold Eagles
fell just short of a 26-year high during April.
If
you wanted real metal, you paid a substantial premium over the paper
price. In silver, these premiums were off the charts. On Thursday, April
25, spot silver was $23.94, but a Silver Eagle from a major online
dealer would set you back $29.54, as high as the paper price before the
mid-April crash.
Meanwhile,
the premium on “junk silver” (U.S. dimes, quarters and half-dollars
dated before 1965) sits at four-year highs, according to coin dealer
Richard Nachbar. Usually, these coins trade at a small discount to the
paper price of silver. Now? As the chart nearby shows, they fetch a 17%
premium over spot, and that’s wholesale.
If
you’re still skeptical that “Zero Hour” is a real possibility, there’s
new and compelling evidence. Sprott Asset Management chief Eric Sprott
believes Zero Hour is made inevitable by Western central banks “leasing”
their gold to commercial banks at less than 1% a year. The commercial
banks then sell that gold and plow the proceeds into higher-earning
investments.
“Now,”
Sprott writes in a new white paper, “our long search for the ‘smoking
gun’ to prove our hypothesis appears to have finally materialized.”
The
evidence lies in the monthly trade data from the Census Bureau. The
December 2012 report revealed net gold exports of $2.5 billion, almost
50 tonnes. This staggering number prompted Sprott and his team to dig
through the figures as far back as they exist, all the way to 1991. The
data show that net exports from 1991-2012 totaled 5,504 tonnes.
Here’s
the problem: During that same period, U.S. supply mine production and
recycling totaled 7,532 tonnes, while demand was 6,517 tonnes. That left
only 1,015 tonnes available for export. Where did the other 4,489
tonnes come from?
“The
only U.S. seller that would be capable of supplying such an astonishing
amount of gold,” says Mr. Sprott, “is the U.S. government, with a
reported gold holding of 8,300 tonnes.”
“In
this context,” says our friend and Crash Course author Chris Martenson,
“the gold slam begins to smell like an operation designed to shake as
much gold as possible out of weak hands so that the bullion banks can
begin to recover it to square up their accounts. GLD, the gold ETF that
so many small investors participate in, is one large, obvious target,”
he adds, “as it was sitting on 1,350 tonnes as of January 2013.” By the
end of April, more than 250 tonnes of that total were gone.
“I
don’t even look at gold as gold anymore, they securitized it,” CNBC’s
voluble Rick Santelli said on March 27, weeks before the big beat-down.
The
endgame is getting closer. “What I believe is going to happen, probably
in the not too distant future,” says Eric Sprott’s right-hand man John
Embry, “is that the pricing mechanism of the gold and silver markets
will swing to the physical market, which cannot be manipulated, because,
basically, either you’ve got it or you haven’t.”
The New York Times had the definitive take on the vicious sell off in gold.
The analysis provides a good representation of the current conventional
wisdom. The only twist here is that the article from which this summary
is derived appeared in the August 29, 1976 edition of The New York Times. At that time gold was preparing to embark on an historic rally that would push it up more than 700% a little over three years later. Is it possible that the history is about to repeat itself?