Over the last few days, we got what was merely the latest confirmation that when it comes to sliding gold prices, consumers of physical gold just can't get enough.
As the Times of India reported over the weekend, India's gold imports shot up by 61% to 155 tonnes in the first two months of the current fiscal year “due to weak prices globally and the easing of restrictions by the Reserve Bank. In April-May of the last fiscal, gold imports had aggregated about 96 tonnes, an official said.”
This follows confirmations previously that with the price of gold sliding, physical demand has been through the roof, case in point: “US Mint Sells Most Physical Gold In Two Years On Same Day Gold Price Hits Five Year Low”, “gold bullion Demand Surges – Perth Mint and U.S. Mint Cannot Meet Demand”, “Gold Tumbles Despite UK Mint Seeing Europeans Rush To Buy Bullion” and so on. As of Friday, the US Mint had sold 170,000 ounces of gold bullion in July: the fifth highest on record, and we expect today's month-end update to push that number even higher.
But while the dislocation between demand for physical and the price of paper gold has been extensively discussed here over the years, most recently in “Gold And The Silver Stand-Off: Is The Selling Of Paper Gold And Silver Finally Ending?”, something unexpected happened at the CME on Friday afternoon which may be the most important observation yet.
Recall that in the middle of 2013, in an extensive series of articles, we covered what was then a complete collapse in Comex vaulted holding of registered (i.e., deliverable) gold. At the time the culprit was JPM, where for some still unexplained reason, the gold held in the newest Comex' vault plunged by nearly 2 million ounces in just six short months.
More importantly, the collapse in registered Comex gold sent the gold coverage ratio (the number of ounces of “paper” gold open interest to the ounces of “physical” registered gold) soaring from under 20 where, or roughly in line with its long-term average, to a whopping 112x. This means that there were a total of 112 ounces of claims for every ounces of physical gold that could be delivered at any given moment.
