Market Insights

The Price of Physical Gold Is Separating from the Price of Paper Gold

Gold Alliance disclaimer


A new era, a new opportunity

Did you ever believe you would walk into a grocery store in the US and see empty shelves? Did you ever believe the US Secretary of the Treasury would warn the Senate that lack of proper action will cause a 20% unemployment rate in the US?

Placing the health issues of COVID-19 aside for now, one of the effects of the virus is a major supply disruption and the beginning of a significant paradigm shift. We have written numerous articles about the great shift coming, and we shared views of investor legends like Jeffrey Gundlach and Ray Dalio. We quoted financial analysts like Jim Rickards and John Mauldin to support our views… Now it’s here, and you have a choice: Suffer from the change while you cling to beliefs that served you relatively well for a few decades, or try to make the most of it and fortunes can be made under any paradigm shift.

The end of stocks and bonds for a decade or more

Here it is in a nutshell. The days of financial assets like stocks and bonds are over. Get used to it. Your financial advisor’s recent advice is now posing the biggest risk for your retirement.  Welcome to the new world where hard commodities, like gold, silver, grain, and rice, will rule the Earth, and they will do it for such a long time that you will end up thinking this is the natural order of things, just like most of us were led to believe that stocks and bonds are safe and will always be the preferred way to a safe retirement. The new paradigm will not last forever, but 10 years is a very long time, especially when you consider a potentially devastating high inflation.

For today’s article, I want to focus on the first signs that hard commodities are better than their financial paper counterparts.

What does this mean to you?

Today, the Royal Canadian Mint notified that it will shut down for two weeks due to the coronavirus and will reopen down the road with a skeleton crew. As a result of this notification by a major global mint, premiums for gold and silver coins across the board spiked by about 6%. This happened while the price of paper gold went up a modest 0.6% and overall is down recently.

How can that be? Well, enter into the reality that the paper value for commodities does not reflect their real value of supply and demand. It has happened many times before, most recently around 2012 with the price of paper silver compared to the price of real silver, and it’s happening now. What does it mean for you? When you own the real, physical commodity, you have protection from the manipulation and distortions of the paper price, which has nothing to do with the true supply and demand of your asset.

If you bought physical gold from us in the last year, don’t look at the spot price for the value of your metals and be alarmed. The declining spot price of gold is a natural occurrence during market drops and deflationary pressures. Here’s why:

How gold behaves in times of crisis

When stock markets crash, large hedge funds need to cover their margin calls. They are buying financial assets like stocks and bonds on leverage, and when they lose money, they need to cover their positions, so they liquidate good assets, like their paper gold holdings, to cover the bad. But physical gold holders don’t have those constraints. As a result, the COVID-19 scare made enough people move to buy physical gold, and  80% of the market for the more sought-after physical gold products, mostly desirable coins, was sold in the last week. Gone. Poof. What happened to the price of the remaining 20%? Like in any healthy market where there is real demand, the price shot up.

For those of you that want to see what it means in numbers, here goes: The spot price of paper gold assets went down from an average of $1,650 to $1,500 over just the last two weeks as the stock market was imploding and hedge funds were covering their positions. If you bought a gold ETF two weeks ago, you are 10% down on your investments. However, over the last two weeks, due to the huge demand and tight supply of physical gold, the premiums on coins our clients bought went up by over 10%. It means we are now buying the same coin we bought two weeks ago for 10% more, so the value of these coins just went up by 10%. So, the price of physical gold kept its 5-year high from two weeks ago, while the price of paper gold is down…

But what about silver? Well, silver is always more volatile, so we see the same picture there but at an extreme level. if you bought actual silver coins last month when the spot price was $18 and you see it now at under $13, your heart breaks, right? But wait…

Since premiums for various silver coins have gone up by 40% just this week, it means that physical silver has kept its recent all-time highs. Not so for the price of paper silver, which you get when you purchase a silver ETF or certificate, which went down by about 30%.

The bottom line

For those of you who listened to your financial advisors and remained in stocks—or even worse, “bought the dip”—sorry for your loss. Unfortunately, these losses should continue to worsen in the following months. If for some reason you don’t take action to change your financial strategy, at least you’ll hopefully still have your health.

For those of you that were persuaded by your financial advisor to buy paper gold ETFs after you told them you are considering buying physical gold, sorry for your loss as well. The best option you have is to switch over to the physical counterpart at the right opportunity because the disparity between paper and physical items is not too severe yet. But it can be catastrophic at times.

For those of you who purchased physical gold and silver—you are doing great! While no one can promise that gold returns over the next 20 years will be the same as they were over the last 20 years (about 500% return), I will join Ray Dalio in his recommendations for this decade:

“Sell stocks, buy gold.” And if I can add one word to his statement, I would say: Sell stocks, buy physical gold.

Our message to you

On a separate note: Our company is based in Woodland Hills, CA, and I am writing this while being the last person in the office ready to head out to what seems like a one-month lockdown. I wanted to reassure all of our clients and readers that we prepared for the coronavirus when we saw the effects of its progress in China, and our company is now fully operational, working remote, our supply lines are intact, and our vendor partnerships are working smoothly.

Regardless of the chaos we all face outside, you can still call us at our regular working hours, and we will be here for you, always. Although we face truly unprecedented circumstances, this crisis has only made us here at Gold Alliance even more committed to our mission of providing freely available guidance about anyone’s retirement funds that may be in danger.

My thanks go out to our essential workers, who are keeping water, electricity, food, medical care, and emergency response services available, as well as to our county leadership for guiding us through this storm;

And thank YOU for stepping up to do whatever you can to protect yourselves and your community.

We will be better as a species after this, but we are going to experience high health risks and difficult financial times.

If you prepare your home, yourself, and your finances, you will be able to traverse these times with relative ease.

Best regards,


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