Taki Tsaklanos: We wrote about the great disconnect between physical and paper silver only a few weeks ago. After the sharpest one-day price drop since 2001 the disconnect between physical and paper is becoming even larger. It is now present in both metals.
On Friday, even the World Gold Council came out with a press release in which they confirm (1) speculation in the futures market as the primary reason for the price drop and (2) the massive wave of physical buying across the globe. “We are already seeing shortages for bars and coins in Dubai, while premiums in Mumbai are at $26/oz and $6 in Shanghai, indicating that buyers are willing to pay more than current spot prices for the metal.”
Let’s quickly review what we learned in one of the most volatile weeks ever:
- Russell Rhoads points to the ferocity of the price drop. He writes: “For simplicity sake let’s call it a five standard deviation move. Statistically we get a five standard deviation move approximately once every 4,776 years. So we should not expect another move like this out of the price of gold until May 17, 6789.”
- It is likely that the bullion buying panic is signaling that the price discovery mechanism is well alive.
- Physical shortage has got a lot