The Real Reason Why Gold Prices Are Falling

gold wikimediaThe past few months have been pretty rough for gold buyers. Week after week the price has plummeted, most notably on Tuesday when the spot price fell to a 6 year low. At first glance the decline seems relentless, and a vindication to all those investors who thought that the gold bugs were crazy and reckless. However, there’s bit more to this than meets the eye.

You have to recognize first and foremost that what we’re seeing is the decline of the paper gold market. As the price falls, the sale of real gold keep climbing. The US Mint sold a record of 97,000 ounces of gold in November, which is 185% more than they sold in October, and 62% higher than it was last year. Likewise, silver bullion has also been breaking records.

There have been several reasons given for this schizophrenic market trend.  As for why paper gold is falling, some suspect that the Fed will raise interest rates, thus strengthening the dollar. Maybe China’s faltering economy is hindering their population’s rabid gold demand. There’s also the fact that Mario Draghi, the President of the EU’s central bank, has said that he will inflate the Euro. Again, this would also strengthen the dollar, and lower gold prices.

So then why is demand for real gold going up despite falling prices? Some think there is a renewed threat of a recession on the horizon, so there is a heightened fear of financial collapse. Or perhaps it’s simply because the kinds of people who buy physical gold have fundamentally different beliefs and investment strategies from those who buy paper gold. Physical buyers feel much stronger about gold’s long-term prospects, so they will always buy when the price falls.

I have a different theory however, or at least one that is an addition to the theories you just read. First, take a look at what’s going on with the Comex vault, which is one of several vaults that determine the price of paper gold:

One week ago, gold market observers were surprised when in the span of four days, gold held in the JPM Comex vault declined by nearly 50%, starting on November 16 when the 668,498 ounces held in the vault below 1 Chase Manhattan Plaza declined precipitously to just 347,899 ounces, a new all time low.

Furthermore, as of the latest Comex activity update, on Friday the Registered gold held by JPM dropped another 2,802 ounces to a record low and virtually negligible 7,975 ounces, essentially equivalent to zero as shown in the chart below, even as JPM’s eligible gold has also been seeing a substantial decline in recent months.comex vault

But while the decline of JPM gold has long been noted, it was the latest drop in total Comex registered gold which has again raised eyebrows, and which contrary to expectations it would be replenished either from external inflows or by conversion from Eligible both of which have not happened, has instead continued to decline. According to the latest data, total Registered gold dropped by another 11% overnight to just 134,877 ounces, just over 4 tonnes and another all time low…

comex vault

In case you don’t know, eligible gold is that which is held by the vault and owned by refiners, hedge funds, banks etc, but is not available for delivery. Registered assets represent real gold that is ready for delivery to investors. As you can see, the registered gold at Comex has almost completely disappeared. Right now, the ratio of deliverable assets to paper stocks, is at an astonishing 294 to 1.

So why is the price of gold falling, while demand for real gold continues to break records? I think what we’re seeing is a mass exodus from the paper gold market. These investors are finally seeing the writing on the wall. They see that this can’t continue forever, and that the paper they’re holding is essentially worthless.  So they’re selling their faux gold, and using the money to buy bullion. They don’t want to be the last man hold the bag.

At some point, something has got to give. Either real gold will start to trickle back into the system, or the Comex vault will collapse. If that happens, only those who own real gold will come out on top.

Joshua Krause was born and raised in the Bay Area. He is a writer and researcher focused on principles of self-sufficiency and liberty at Ready Nutrition. You can follow Joshua’s work at our Facebook page or on his personal Twitter.

Joshua’s website is Strange Danger

This information has been made available by Ready Nutrition

Originally published December 3rd, 2015
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  • Cluez Jones

    Interesting theory.

  • logika11

    “Either real gold will start to trickle back into the system, or the Comex vault will collapse.”
    Nonsense. Ain’t gonna happen. No one is demanding delivery; plus there is no contractual obligation for Comex to deliver physical gold. They can settle in fiat. That’s good enough for most gamblers out there who bought the paper gold. Any billionaire could have easily crashed Comex if it was as simple as demanding the 4 Tonnes they have in the vault. Think about it.

    This scheme will continue for as long as they dictate. There’s nothing anyone can do about it….is there?

    • GenEarly

      “We are helpless” say the sheeples. Yet I see gun buying has risen in Nov. Above the Sandy Hook frenzy, actual Silver and Gold purchases for possession are up, and long term food (25 year) purchases are strong. I also suspect ammo will soar after the Orkle Obamy delivers another one of his “sale pitches” tonight, 12/6;
      We will see.
      PRE-pare is always ahead of the event, and better than a day late.

  • AirDragon

    First of all, gold prices are manipulated and we are seeing China grabbing as much gold as they can to facilitate the Yuan backed by gold versus the petro dollar. As manipulated oil prices come down to “hurt Russia” and to slow shale extraction in the U.S., both the dollar and gold are at battle with each other.

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