Tag Archives: paper gold

Gold Price: USD 65,000/oz in 5 years?

16 June 2021 is exactly five years from today. What will the gold price be on 16 June 2021?

Currencies are Worthless

As the world’s fiat paper currencies have lost 99% or more of their purchasing power over the last 100 years, its critical to understand that fiat paper currencies are not a suitable unit of account for accurately measuring prices.

In fact, gold is a far superior measuring stick of value than paper currencies.

A paper currency doesn’t measure anything. It merely has an arbitrary value placed upon it by the population using it. It’s not backed by anything and it can fail at any time. From historical experience, we know that the unbacked fiat paper currencies used today will ultimately destruct and become worthless. All unbacked fiat currencies throughout human history have failed.

A more accurate measurement would be to measure fiat currencies in gold. If we look at the US Dollar measured in gold, we can see that the US Dollar has utterly failed in retaining its value, as its value has plunged about 98% over a mere 50 years. It cannot therefore be seen as a store of value.

Chart of US Dollar measured in Gold. USD price instead of Gold Price.Source: Gold Price Charts, BullionStar

Extrapolating into a likely future, a future in which you will need a stack of USD 100 bills to buy a carton of milk and a couple of eggs, underlines that the US Dollar gold price is meaningless as an indicator of value. When discussing the price of gold, the key is to recognise that gold retains its purchasing power over time. If a 1 oz gold coin can buy an exclusive men’s suit today at USD 1,300 and the same 1 oz gold coin buys an exclusive men’s suit at USD 2,600 tomorrow, this only means that gold is still reflecting USD 1,300 in today's purchasing power and hasn’t gained in value. It’s the US Dollar that has depreciated vis-à-vis gold. Similarly, if the gold price goes to USD 650 and it can still buy the same suit, then it’s merely the US Dollar that as appreciated vis-à-vis gold.

With a gold price of USD 65000, what will the USD be for Milk, Egg and Bread

As a society, we should by now have transcended the idea of measuring value in fiat currencies. Currencies are not a reliable measuring stick. Just imagine if the centimeter, meter, yard or foot were to fluctuate in length.

100 cm 100 years ago has become 2 cm today. Think about it. This is what has happened with our currencies.

The Gold Price                                  

The gold price is an interesting term because the gold price doesn’t reflect what’s happening on the physical gold market whatsoever.

In today’s marketplace, a lot of things are regarded as “gold”. On the London Gold Market alone, there’s 600 times more gold traded each day than there is gold mined globally on that same day.

All sorts of paper gold passes for “gold” on the financial markets. The vast majority, certainly more than 95%, and likely more than 99% of this paper gold is not backed by any physical gold.

“Gold” is created out of thin air as paper obligations. The demand for and supply of this paper gold has little to do with the physical gold market.

During the last couple of year, demand for real physical gold has been insatiable , however the price of gold has not reflected this huge demand. Physical gold has been flowing from the Western vaults to Asia. The Chinese in particular have been vacuuming the London vaults for gold. However, this substantial physical demand hasn't been reflected in higher gold prices because whereas Easterners have been buying physical gold, Westerners have been selling paper gold.

Given that the price of “gold” is set on the OTC paper market in London and on the COMEX futures market in New York, the US Dollar denominated gold price continued to fall between 2012 and 2015 despite the massive physical demand, and instead, it created a physical shortage of gold.

Whether physical demand is up or down 5 tons in China or India matters little when there’s 5,500 tons of paper gold traded each day in London  as visualized in this infographic. London, and to a lesser extent COMEX in the US, are the price discovery markets for gold. However, paper gold on these markets is almost exclusively cash settled with less than 1% of the contracts/futures settled with delivery of physical gold.

The gold price is therefore not dependent on the market fundamentals of physical gold but this may very well change in the future.

With China picking up all physical gold available every time the price slides, widespread shortages are a likely outcome if the gold price ever were to decrease significantly again. Given that the historic vaulting capital of the world, London, has already been running out of stockpiled gold, there just wouldn't be enough physical gold to satisfy demand if the price were to ever plunge significantly again.

It's actually been a healthy development for the physical market’s demand/supply balance  that the gold price has increased 22% in USD Year-to-Date 2016. However, we have to understand that the largest potential for a revaluation of the gold price paradoxically may be preceded by a decrease in gold prices.

When trend seeking Western investors sell their paper gold and the price slides, Easterners take the opportunity to buy physical gold at bargain prices, thereby stressing the physical market with shortages as a result. Such shortages may very well be what ultimately breaks the neck of the paper markets. Because when there is no longer any physical gold available at the price dictated by the paper markets, there will be a disconnect between the price of paper gold and the price of physical gold. Paper gold will go towards zero whereas the price of physical gold will skyrocket.

Such a revaluation of physical gold will bring the fiat paper currencies to their knees as their worthlessness as a store of value will become clear to all.

USD 65,000/oz

What will the price of gold be in 5 years’ time?

Gold is savings - Gold is wealth, and as such, the price denominated in something as inferior as the US Dollar isn't very important.

For the sake of reflection, we can play with the idea of what the price of gold would have to be if the US Dollar were to go on a fully-backed gold standard.

The US gold reserve officially stands at 8,133.5 tons although it has never been properly independently audited. At USD 1,300/oz, this would be equivalent to 340 billion dollars. The total US money supply is about 17,000 billion dollars. For each "gold backed" dollar today, there are therefore 49 unbacked dollars. The gold price would thus have to increase 50-fold to USD 65,000 if the US Dollar were to be fully gold-backed by 16 June 2021.


The Real Ponzi Scheme

BullionStar was founded on the belief that precious metals generally, and gold specifically, has a central role in the monetary sphere.

Gold is rare, beautiful and has superior metallic characteristics to other metals. Furthermore, gold is durable, portable, divisible, fungible and possesses intrinsic value.  This has led to gold being used as money throughout most of recorded human history. One of the strongest historical value propositions of gold as money is that gold naturally emerged as money in different civilizations and continents worldwide, without the civilizations being aware of each other.

Unbacked fiat/paper/credit, and nowadays electronic currency, has a poor track record. Every time it has been tried historically, it has vanished through hyperinflation, war or political decrees. The fiat currencies of today actually have comparatively good track records, but even so, most currencies in circulation a century ago are no longer in existence today and the ones that are have lost 99% or more of their purchasing power.

Still, there's a lot of gold bashing in the mainstream media as the gold price has fallen slightly over the last couple of years when priced in some of the fiat currencies. Measuring gold in something worthless (fiat currency) is upside down though. Gold has maintained and even increased its purchasing power in the last century, whereas all fiat currencies have lost 99% - 100% of their purchasing power.

Why are there no fiat currency bashing articles in mainstream media? 99% - 100% lost in a century - What a fraud!

Governments are keen, and rightfully so, about going after companies setting up Multi-Level Marketing (MLM) and Ponzi schemes, but always exempt themselves, and their buddies at the central bank, from the rules.

In an MLM scheme, the idea is to recruit downstream marketing participants, known as ‘downline’, so as to generate multiple levels of compensation for the recruiter. This form of pyramid scheme is exactly what we have today with our fiat currencies. Early receivers of newly printed money i.e. governments, central banks and commercial banks are gaining purchasing power, whereas late receivers, read: most normal people, are losing purchasing power.

Today's monetary system, built on the fragile basis of fractional reserves, is a system that is doomed to go bust. You just can't borrow forever and in the process create the money out of thin air with no intention of paying anything back.

For the last four decades, we have experienced tremendous monetary inflation and money printing. The worst villain, the United States, has hyperinflated its currency, and although we've seen substantial price inflation, it hasn't been as high as the monetary inflation. The reason for this is the exorbitant privilege the US is holding in terms of printing the reserve currency of the world, the US Dollar. The only reason the system is holding up is the promise of more and more easy credit to infinity.

However, in the end, the problem of too much debt can't be solved with more debt.

What we are witnessing now is the USD quickly losing structural foreign support as a reserve currency. This is one of the topics I recently covered at BullionStar's 3 year anniversary.

Governments and central banks around the world are no longer interested in increasing their holdings of US Dollar denominated debt. China, the largest sovereign holder of US debt, has not increased its holdings of US debt for four years and the pattern is the same for other surplus countries.


The only reason the system is still holding up is due to the increase in private non-US demand of US Dollar denominated debt. With many developing markets and their currencies crashing, and with people being conditioned to run to the US Dollar as a safe haven in the short-term, this is the savior for the time being.

The US has a national debt of USD 17,000,000,000,000 and unfunded liabilities of USD 100,000,000,000,000 - USD 200,000,000,000,000. How's that for a safe haven?

In reality, everyone knows that the US has no credibility, but it's when people start to act on the knowledge that the US has no credibility that we will see a loss of confidence triggering an avalanche of deleveraging. In previous instances when private support for US debt decreased, there was always foreign government support, but that's no longer the case.

We are at the beginning of the end. Everything today is pointing towards a deflationary depression, but it's when, in a deflationary depression, the government starts to buy debt/credit with cash at all costs coupled with a loss of confidence that we arrive at the end stage - hyperinflation. Policy has never and will never allow for deflation.

Why is the government protecting the most fraudulent schemes?

The Monetary Authority of Singapore recently announced plans for enhancements to its regulatory framework for safeguarding investors' interests.

This is likely an effect of several large MLM/Ponzi gold schemes, like those offered by Genneva Gold, The Gold Guarantee and Suisse International in Singapore, failing during the last 3 years. It's startling that people still fall for scam after scam with guaranteed interest payouts of 20 plus percent and/or guaranteed gold buy-back prices.

One of the suggested measures in Singapore to be tabled in Parliament during 2016 is that buy back schemes where a seller sells gold with a guaranteed buy-back at an agreed price will be regulated as debentures. This is a very good measure which will hopefully clear the Singaporean market from the scammers for good as it will then be clearly illegal to run unlicensed MLM gold schemes.

At BullionStar, we support these steps taken by the MAS.

A larger question however, is whether government authorities around the world are missing out on the really big Ponzi schemes.

The world's largest wholesale gold market is the London Gold Market. The London Gold Market is generally very opaque in nature and there isn’t any trade turnover data published, only net clearing volumes. The trend is unfortunately that transparency is decreasing as the London Bullion Market Association (LBMA) forward market makers have stopped publishing the interest rate for lending gold (GOFO), have ceased supplying data on gold forwards, and has chosen not to be transparent about the process used in the LBMA gold price auction.

To give a hint of the trading volumes at the London Gold Market, the most recent data available is from a survey conducted by the LBMA in the first quarter of 2011. 36 of LBMA's 56 participating members submitted trading statistics for the quarter in question. The average daily trading volume reported, after adjusting for double accounting, turned out to be 170,195 tons of gold for the quarter or 2,700 tons of gold per day. Albeit a staggering number, it's likely that the real volume is even higher as only 64% of the LBMA’s members participated in the survey.

In the survey, the LBMA stated that "it can also be seen that there is an approximately ten to one ratio between the turnover figures and the clearing statistics". 

Using the approximation that trade volume is approximately 10 times higher than net clearing volume (which is conservative as mentioned above) and looking at the LBMA clearing statistics since 2011, there was a slight surge in volume in 2013 inferring a daily average about 3,413 tons of gold traded per day after adjusting for double-accounting. For 2015, volumes have decreased slightly to 2,756 tons of gold traded per day equivalent to about USD 100 billion per day based on the current gold price.

Let's put this into perspective.

According to the World Gold Council's report on Gold Demand Trends for the second quarter 2015, the annual global gold mining production for 2014 was 3,133 tons.

The volume traded during one day on the London Gold Market is thus at least 88% of a whole year's gold mining production. Assuming about 250 trading days in a year, the volume traded solely on the London Gold Market is about 22,000% higher than the world's annual mining production. And this is a conservative estimation.

The clearing and turnover volumes are nothing short of shocking.

As the London Gold Market, together with the New York market, is the global price discovery market for gold, it's apparent that physical supply and demand of gold has nothing to do with the price of gold.

Which do you think carries a higher weight when it comes to influencing the price of gold; An increase or decrease of 10 tons of physical gold demand for the Indian wedding season in a quarter, or the 170,195 tons of paper gold changing ownership each quarter in the London Gold Market?

Factors like Indian wedding demand are often cited by media as a cause of price movements, whereas the London Gold Market volumes are never mentioned. Whether demand is high during the Indian wedding season or not does not matter one ounce in terms of price fluctuations. It totally misses the point as the London Gold Market, together with the US/New York market, dominates price discovery.

Physical demand matters in stressing and ultimately breaking the market structure but it does not matter for the (paper) price of gold today. The fundamentals for physical gold are completely separated from the paper price of gold. The paper price of gold has nothing to do with the physical market whatsoever.

The price for physical bullion products is never traded at parity with the paper price. There is always a price premium. When demand for physical gold is increasing, as we have seen over the last couple of months, price premiums are shooting up, diverging the physical price from the paper price even further.

BullionStar deals only in physical precious metals

When putting the above in perspective, it's clear that the paper trading of precious metals is irrelevant to physical gold and that it is unsustainable in the longer term.

That's why we at BullionStar have a strong aversion to all forms of paper trading of precious metals.

At BullionStar, we don't engage, trade or speculate on any paper markets, financial markets, commodity exchanges, commodity platforms or anything similar. We don't engage in forwards, futures, spot commodity trading or anything of the kind. We never in any capacity work with brokerages of any kind.

BullionStar merely purchases fabricated precious metals items, and to a smaller extent numismatics and jewellery, from wholesalers, mints and refineries and retails these items.

Physical precious metals decoupling

Prices for physical precious metals are in the process of decoupling from the paper price.

The first phase, in which we are now, is that we get shortages of physical bullion.

The second phase is that the physical flow completely dries up and the physical price resets based on physical supply and demand at a higher level few people can imagine today.

Paper gold trading needs to have a functional physical market in the background for keeping up the confidence in the paper trading. When gold supply dries up on the physical market, there will no longer be any confidence in the paper market as everyone will realize that the paper market consisted by nothing but paper gold created out of thin air. As a result the paper gold market will crash and the price of physical gold will reset higher.

When this happens, it's important that you deal with a bullion dealer without any exposure to paper commodity markets that only deals in physical precious metals.

BullionStar operates with the ideological belief that physical precious metals have important monetary properties and that paper trading is inherently risky. That is why we refrain from participating in the paper trading casino style market. The bullion we offer is physical in nature. We have never and will never offer any unbacked metal, collateralization of customers’ physical bullion, forwards, futures or leveraged trading. All bullion you buy from BullionStar is fabricated, unencumbered, and fully physically allocated bullion.

By Torgny Persson, CEO BullionStar