Gold Price Disconnect

Great article this morning on the disconnect between the quoted price of gold, which is based on institutional trading of "paper" gold and the actual price investors are paying for physical gold.


For gold, a tussle between two groups of investors
Retail-based demand jumps even as institutions undergo a massive exodus
By Moming Zhou, MarketWatch
Last update: 10:55 a.m. EST Nov. 19, 2008

NEW YORK (MarketWatch) -- Retail investors sharply increased their demand for gold bars and coins in the past few months as they struggled to find a safe place for their money amid the financial crisis, research shows.

But institutional investors have kept the upper hand, according to Wednesday's report from the World Gold Council, a gold mining industry association. Heavy selling by institutions has more than offset retail buying and pushed gold prices to their lowest level in more than a year.

Moves by retail investors, including demand for bars and coins, resulted in a net inflow of 232 tons (7.46 million ounces) in the third quarter, compared to 105 tons in the same time frame a year ago.

The figures, compiled independently for the council by GFMS Ltd, a precious metals consultancy, show strong bar and coin buying in Swiss, German and U.S. markets.

Demand for physical gold didn't slow even when some financial institutions were forced to sell their gold assets to ease the squeeze in their cash balances.

"Funds who would like to keep their asset of last resort are being forced to sell," said Peter Spina, an analyst at GoldSeek.com. "This is causing weakness in the paper gold market price, but it is not a true reflection of the physical market."

"There will be more victims of the fund collapse and more forced liquidations even if it requires selling your most desired assets such as precious metals," he added. "Once this process works itself through, the true market prices for gold will readjust."

end of article

In my opinion, that word "readjust" means "move up a lot, real fast."

In light of the recent shortage of physical gold, I would suggest buying all you can, as quick as you can.