As a follow up on Eric Sprott's bullish call on gold here, let's see what has happened ever since.
His premise was that hedge funds take possession of their physical gold of the GLD trust, because there isn't any other gold available. As they take possession of this physical gold, they are going to sell it to China who give huge premiums on this physical gold (around 3%).
Following chart indeed says to us that hedge funds are still taking possession of their GLD trust units. The GLD now only has 969 tonnes of physical gold left. The question is now, how much physical gold does GLD really have? If someone knows, please tell me. But we have another way we can look at it, by just looking at how much registered gold there is on the COMEX.
Chart 1: GLD
If we look at the COMEX warehouses, registered gold (which represents physical gold) is declining (blue chart on Chart 2). Total stock is declining too. When these charts hit zero, there is no gold anymore at the COMEX and we will see defaults. The gold exchange will become a cash exchange.
Once the blue line intersects with zero, bad things will happen because no physical gold is available at the COMEX. I guess that when the blue line intersects, there is a chance GLD could blow up as people scramble to get physical gold at the GLD trust.
Chart 2: COMEX
Jim Sinclair confirms:
As long as physical gold remains at a premium above future that is above the cost of insurance and transportation, the lower the inventory of gold at the COMEX goes. A futures exchange without a warehouse inventory becomes a cash exchange. This is the emancipation of physical gold from the manipulative capacity of No-Gold, Paper - Gold
Now let's see how this translates into the premiums on the Shanghai Gold Exchange.
Chart 3: Shanghai Gold Premium
As you can see on Chart 3, the premium has never been as high since I monitored it. We are at 2.8% now.
So investors are taking the opportunity to make arbitrage profits by buying gold from GLD and selling it to China at a premium.
Let's see how long this can go on.
On the silver front, premiums have almost skyrocketed to 40% for some miners.
Chart 4: First Majestic Silver premium