The Current Level of Physical Gold Trading Is Incredible

The world already hit a massive iceberg back in 2008, and it’s been sinking slowly ever since. The fact that money has been pumped into the system around the globe has meant that the sinking is going more slowly than it otherwise would have.

Of course this money printing will have no positive long-term effect or benefit whatsoever since printed money is worthless and can never add any value. But it’s making the process slow and painful for the world. People are in total denial, the band is still playing and the people are still dancing on the ship.

Just look at the world economy. Japan is a disaster case with astronomical debt and zero interest rates. They will not survive. In Europe we have so many basket cases which have no chance of survival. Take Spain, Portugal, Italy, Greece, France, the UK, they are all totally bankrupt economies...

And the US is the biggest debtor in the world, which can never repay its debt with real money, and the Fed’s balance sheet is exploding. It’s gone from $800 billion in 2008 when the crisis started, to $3.2 trillion now. So if you look at the curve, the Fed’s balance sheet is growing exponentially.

The Fed is now buying 75% of all new Treasury issuances. In a couple of months time they will probably be buying 100%. So we are seeing liquidity injections around the world. Since 2008 we’ve seen an astounding roughly $20 trillion in injections. But this has had no effect whatsoever on the real economy.

These injections have only helped banks and created bubbles in stocks, bonds, and property markets. Total world debt, if you exclude unfunded liabilities, is now around $250 trillion. If only 10% of that total was bad debt, that would be a miracle in my view. That would be a staggering $25 trillion, but I’m sure at least 1/3 of that is bad debt. That means $70 trillion of bad debt, which is the same total as world GDP.

Of course the world would never be able to repay $70 trillion of bad debt. All of this excludes the more than one quadrillion dollars of global derivatives, most of which is worthless. But before any collapse of the 100-year old Ponzi scheme takes place, there will be unlimited money printing that will lead to a hyperinflation.

Investors may ask, ‘What will be the effect of all of this and why is gold not going up?’ Well, gold will continue to go sideways as it has for 5,000 years. Instead, paper currencies will collapse in their race to the bottom. Just take the month of May: 15 central banks have lowered interest rates. They are all competing to debase their currencies.

Collapsing currencies worldwide will not just guarantee inflation, but hyperinflation. Gold will continue to reflect that by maintaining its purchasing power. So in paper money terms, the gold price is likely to have several zeros after it in coming years.

Short-term, gold is continuing to react to irrelevant and false economic figures. For example, today we had PMI and Consumer Confidence numbers released in the US and they were high, so gold goes down. Sentiment figures are driven by money printing of course, and higher stock markets. Therefore, they can temporarily make things look better than they are, but the real underlying economy is in terminal decline.

Just look at what’s happening in the physical gold market. The LBMA reported record gold transactions in April, of plus 25%. This is the highest level since gold peaked in September of 2011. So physical trading is at the same level where it was when gold was at its peak at $1,900. That’s extraordinary. The level of physical gold trading is incredible. We are seeing the same activity now as when gold was at its peak. And it proves that all of the selling is in the paper market.

Remember, these were April figures. We have seen, and also refiners have seen much higher activity in May. So demand is even greater right now. I believe that we have seen the gold market finally turn to the upside, despite today’s pullback. It’s possible to see some consolidation before gold takes off, but the real move, when it starts and it won’t be far away, that will be massive.