Editor’s Note
This article presents exclusive testimony from a senior Swiss gold refining executive, offering a rare, on-the-ground perspective into the movement of physical bullion from major exchanges. The claims made within are those of the interviewee and provide a unique insight into current market dynamics.
The narrator of this interview is a senior executive at a major Swiss gold refining company. He is also an authoritative refiner in a position to conduct qualification reviews for gold refining companies worldwide. While his name is not disclosed, his career background is known.
Let’s introduce the key points below.
He joined the precious metals department of Credit Suisse Bank in 1978 to earn university tuition (assuming he was 18 in 1978, he would be born in 1960, making him 55?). He joined UBS Bank in Switzerland in 1985 and worked there until 2001. Subsequently, feeling that handling physical precious metals was more important than the financial industry, he changed jobs to a gold refining company. There, he gained experience in precious metals trading, fund lending, hedging, and other operations.
The information obtained daily from business partners and connections worldwide through working in the gold refining industry is not general newspaper information but highly accurate information from the market.
He has previously commented that the gold shortage that occurred in 2013 was a sight he hadn’t seen in the past 30 years, and as of 2015, the same situation persists.
The current spot price in the gold futures market has absolutely no relation to the supply shortage in the physical gold market. This is because the gold futures market is flooded with a massive amount of paper certificates known as paper gold. These financial derivatives are so abundant that:
All investors trading these paper gold certificates have no interest in physical bullion. Settlements are always cash-only. Therefore, the spot price in the gold futures market is ultimately just a benchmark; these financial derivatives never convert into physical bullion.
However, from my personal perspective, this appears very dangerous. If everyone decides:
then undoubtedly, physical bullion would run out at that moment.
Will the current cash settlements continue forever? Or will it one day shift to physical delivery? That depends on the actions of market participants. The current debt crisis is the worst in decades, and the current gold price can be said to be a low price with no relation to the reality of the physical market.
If market participants are satisfied with cash settlement, this state may continue forever. The gold price would remain merely a benchmark number, unrelated to supply and demand. However, if they start preferring physical delivery, it would become a: