The most expensive investment anyone can buy today is paper gold. For $1,260, an investor will get a piece of paper saying he owns 1 ounce of gold. But he is unlikely to ever see that gold. Firstly, most investors who buy paper gold have no understanding of the real reason for holding gold and will therefore never contemplate taking delivery. And even if he did understand the importance of holding real gold, he is quite happy to hold the surrogate alternative which is paper rather than physical. This is of course what the issuer of the paper gold wants. He knows that paper gold buyers have no intention of taking delivery. This is perfect for the seller because he has no intention of making delivery either. And this is how paper markets function. Buyers and sellers are willing to trade pieces of paper that are said to represent an underlying instrument whether it is a stock, bond, currency or commodity.
Paper gold at $1,260 is worth ZERO
But paper markets are illusory. They give the impression that the buyers acquire a real share in the underlying instrument. That would be the case if for each unit of for example a currency or gold was backed by real money or real gold. But in today’s false markets that is far from the case. We live in a world of the Emperor’s New Clothes. The people is made to believe that the emperor is dressed in a suit made of gold whilst in fact he is naked. And that is exactly how the gold market functions today. Shorts are always naked which means that there is never an underlying asset backing the gold short sale. What the buyer is getting is a piece of paper with zero intrinsic value.
This is a perfect situation for central banks, banks and major trading houses such as hedge funds. With sufficient capital, they can manipulate any market without ever worrying about delivery. The result is markets which are totally fictitious and bears no resemblance to the instrument that is traded.
This post was published at GoldSwitzerland on May 18, 2017.