Monetary Metals Supply and Demand Report: 7 June, 2015

The world is still a mess, just as much as it was last week. Despite that, the price of gold fell $18 and the price of silver fell $0.63. What’s going on? Are the central banks putting the kibosh on the monetary metals? One view is that they don’t want to let people use cash [...]

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1 reply
  1. amusedobserver says:

    You mean “because the world’s still a mess, the price of gold dropped”.

    As liquidity tightens and the level of counter-party trust declines, gold will flow from those who need cash to those who have cash, who will then sell it to get cash again.

    The mechanics of posting collateral have changed over the past 20 years. It used to be that the party posting collateral kept title to the asset. Sometime in the 1990’s it changed to where the party posting collateral also hands over title to the asset; the receiving party then sells it and buys an option to replace it. This only makes sense. The receiving party isn’t going to make any money holding gold and it can only loan it out once. Cash they can re-loan every night.

    There is undoubtedly another big drop in gold coming as the liquidity tightening at some point reaches a crisis.

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