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GOOBIE on Shanghai Gold Premium Hits New High Please explain why the premium is so important ...
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Shanghai Gold Premium Hits New High
One of the most important features of the Katchum Macro-Economic Blog is that you get real time alerts on important data.
One of those data is the premium I see on the Shanghai precious metals market. And today we see a huge increase in premium in gold (Chart 2). Gold premiums to London bullion price have reached 2.6%, the highest since I monitored it. Silver premiums also shot up to 3.8% (Chart 1).
That's a bullish sign.
(click to enlarge)
Chart 1: Silver Premium Shanghai to London
(click to enlarge)
Chart 2: Gold Premium Shanghai to London
Disconnect Between Selling Price Of Physical Silver And Paper Silver
As the paper silver (SLV) keeps falling (blue chart), some miners aren't willing to reduce their selling price (red chart) on their silver bullion.
This lead to a huge disconnect between paper and physical silver of $5.5/ounce, or a 25% premium!
(click to enlarge)
Chart 1: Disconnect between Physical Silver and Paper Silver at First Majestic Silver Corp
Disclosure: I am long AGQ.
The Effect Of Gold ETF's On The Gold Price
As demand is now being dictated for a part by the ETF's, we need to pay attention to what is happening in the trusts. Are they unloading their gold? Because if they keep unloading their gold, the demand from ETF's is going to decline, which has a negative impact on the gold price. This is the theory of supply and demand.
You can monitor this chart daily at the SPDR gold trust site:
http://www.spdrgoldshares.com/usa/historical-data/
(click to enlarge)
Chart 1: SPDR Gold Trust: Units in the Trust (Red Chart, right axis)
As I indicated here, ETF's were the largest sellers in gold, resulting in a 13% decline in the demand for gold. I cannot stress how important it is that ETF's keep buying gold. If they don't buy, like what happened starting in 2013, then the price of gold will decline. The great difference between 2013 and 2008 is that in 2008, ETF's were massive buyers of gold, while today they are massive sellers. Keep watching this trend. If it reverses, you can confidently start buying precious metals.
Disclosure: I am long AGQ.