Episode Details

Today we turn our attention to the physical gold markets.

There is, as veteran dealer Ross Norman of Metals Daily puts it, a “disconnect between the gold price and what is happening in the physical markets.”

“Our biggest challenge,” says Joshua Saul of the Pure Gold Company, “is finding enough stock on a daily basis to sell. There is a long line of demand, but very little supply. There’s more demand than at the height of Covid.”

These situations don’t occur very often, but they do occur. 

The gold price is falling, but demand for physical gold is high

I remember 2008 like it was yesterday. Gold cratered along with everything else in the second half of that year. It lost around 30% – falling from north of $1,000/oz to $720/oz. The mining companies fell by a lot more.

Yet there was a scramble in the physical gold markets. Bullion dealers had never been so busy. The general public were rushing to get their money “outside the system” into an asset that was nobody else’s liability. 

Gold would later turn up long before most other assets. November was the low, while the S&P500 carried on lower until the following March. But the fact was there was a scramble to buy physical gold even as the price was falling.

It happens. “Coins and bars,” says Norman, “are just a subset of a much bigger industry.” That industry includes the futures markets, exchange traded funds, institutional buying and selling, central bank buying and selling and, of course, jewellery. 

Ordinary investors may look at the state of the world and think, “I need to buy some gold”. They may be doing that at unprecedented levels. But that is not enough to balance out institutional investors who are, says Norman, “selling three to ten tonnes a day.”

As I say, these disconnects do happen, but they don’t necessarily last.

The US dollar has stolen the show

It’s all about the US dollar, as we have been saying on these pages for many months. In the year to date, gold is up around 13% in sterling. That’s an almost stellar return compared to stock and bond markets. But against the dollar it’s down some 8%. 

How long does the dollar stay so strong? That’s the question we must ask ourselves. On current form, a while longer it would seem.

Norman, who has an extraordinarily good forecasting record, agrees. “The rampant dollar looks like it might be here for a while,” he says.

You don’t need to look further than US interest rates relative to European interest rates and US energy dependency relative to Europe’s, to understand why we are where we are.

“Never in my career did I think we’d see the circumstances we are now in and gold behaving like it is,” says Norman. “It’s extraordinary. The dollar has stolen the show. But nuclear war is a real possibility!”

Gold, by the way, will survive a nuclear explosion, and none of the three types of radiation that follow – alpha, beta and gamma – will affect it.

Smart investors are still buying gold bullion

But one of the few bright spots in this market is what Norman calls “the literate investor” who continues to support it.

Saul of Pure Gold makes a similar observation. His company makes a point of talking to clients as they buy and sell, to understand their motivations. As a result, they build up a lot of qualitative data.

“Everyone’s looking to protect their wealth in a time when things are really uncertain”. 

But there have been two notable trends he has observed.

First, there has been a notabl