Vincent Tie

Posted by Vincent Tie on 12 Apr 2021

Own Gold & Silver Before the World Scrambles For Them

The recent furor questioning the ability of the SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) to deliver physical bullion outside of normal market conditions brought to mind the advice from Hayman Capital fund manager Kyle Bass to the University of Texas Endowment Fund (UTIMCO) to convert their GLD shares into $1 billion worth of solid gold bars in 2011. He was then serving on the board of UTIMCO.

In a later interview, Kyle Bass shared his reasoning after assessing that the COMEX warehouse (where GLD shares can be redeemed for gold) had only $2.7 billion of gold for delivery against $80 billion of open interest in paper gold. He recounted the following conversation with the COMEX delivery manager.

Kyle: “What if 4% of the people want (gold) delivery?”

COMEX Delivery Manager: “Oh Kyle, that never happens. We rarely ever get a 1% delivery.”

Kyle: “Well, what if it does happen?”

COMEX Delivery Manager: “Oh, well, price will solve everything.”

Kyle: “I said thanks, give me the gold.”

Systems purported by the likes of COMEX only work in good times when traders and fund managers are less inclined to take delivery of physical gold. Such systems are highly likely to break down in market panics and financial crises where trust in leveraged systems crumbles, resulting in investors demanding physical gold. This is especially so since the COMEX platform is known to lease gold to banks – gold that may not return when there are shortages.

The gulf between paper gold open interest on the COMEX and the actual gold held in its warehouses is a crisis waiting to happen. Given the abysmal state of the financial system, unabated trillion-dollar stimulus, and crumbling global trust in fiat currencies, it is a matter of when (not if) systems like the COMEX will fail. It is akin to watching a slow-motion train wreck.

This impending catastrophe is not difficult to understand. Gold and silver cannot be printed. In the precious metals world, the time used to explore new gold deposits, raise capital to build mines, navigate jurisdictional and environmental risks, extract the ore, and refine takes years, if not decades, before the final product reaches investors’ hands. Precious metals cannot be created at will to meet bouts of demand spikes.

When markets crashed in March 2020 due to the Covid-19 panic, demand for bullion skyrocketed even when prices tumbled. All bullion on our website was sold – nothing was available for sale. It was a surreal moment never seen before in the history of Silver Bullion.

Whatever new stock we put up for sale was bought up very quickly by customers. This swift exchange of fiat currency for physical gold and silver was almost a sneak preview of what hyperinflation looked like – rushing to give up currencies in exchange for precious metals. Remember, this is not a hypothesis; this happened in 2020.

The refining industry could not keep up with the surge in demand, and deliveries went out to as long as ten weeks for coins and bars. Such a dynamic makes one wonder: if existing demand from the currently small number of precious metals buyers could constrict the physical market, what happens when a more significant percentage of the world’s population starts buying? What happens when demand doubles or quadruples?

Would the price of gold and silver, as the COMEX delivery manager said earlier, solve the situation? Prices would undoubtedly have to be much higher to rebalance an environment of high demand and low supply. Premiums staying elevated is a sign of tight gold and silver markets.

When the tide goes out as the world scrambles for physical gold and silver in the next financial panic, we will see who has been swimming naked, merely having a claim on gold and unable to get the physical metal. Kyle Bass understood this risk and advised UTIMCO accordingly to take delivery of $1 billion dollars worth of gold.

Gold and silver protect your wealth best when you own them in physical form and store them outside the financial system in a storage system that makes you the owner. This is exactly what you get with our S.T.A.R. Storage program - you are the legal title owner of uniquely identifiable bullion fully insured and stored exclusively in the safe jurisdiction of Singapore.

Think wealth protection first, not investment, when you own gold and silver.