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27 January 2011

Physical Premiums Remain Strong as Gold Takes a Beating on the Exchanges

Disconnect Between Physical gold prices and prices on exchanges continues as premiums remain strong in face of price falls

So it is fair to say that Bullion has taken a bit of a kicking so far in 2011. And any holder of gold or silver is likely to be wondering if it is the turn of the tide or merely a temporary correction. Gold has taken particularly poorly, news of economic recovery, acting as if the positive economic news was a big unexpected surprise.

But with all the stimulus, and general loose monetary policy that has been in effect since the 2008 financial crisis, it was only ever a matter of time before all that funny money translated into some kind of 'improved' growth conditions.

Gold fans may take this either as a sign of future tightening of monetary policy, i.e. Bad for gold, or take it as prelude to massive inflation that many thought stimulus would be generate i.e. Good for gold.

If policymakers have created so much stimulus to generate the meager growth to date it seems unlikely they will be that keen to take money off the table again. Which may well be the opportunity for inflation to take hold.

Buyers in the physical markets appear to be siding with the later of the above arguments, as the disconnect between gold prices on the exchanges and physical gold and silver prices continues to be demonstrated by large premiums on gold and silver.

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