Gold & silver have pricing that is tied to the largest ETF’s for each metal. These prices as we have commented numerous times are driven by the physical demand for metals along with inflationary fears in the developing markets like China & India. There is also the debt crisis in the US & EU bringing droves to the safe-haven metals.
One of the results of these pressures on metals is that there might be a deviation between the physical metals pricing & the ETF pricing. There has been a surge of ETFs to gold, Robbert Van Batenburg Head of Global Research, Louis Capital Markets told CNBC, At some point, this is going to put so much stress on the system and I fear regulatory zeal will be drawn towards these ETFs at some point.
Some are calling for gold to have a market unto itself much in the same way the NASDAQ started for tech stocks. Irakli Menabde, founding partner of fund manager M2 Capital Partners commented on CNBC, The gold physical market is more about the defensive nature of gold, but a gold stock market would also deliver dividends and surging share prices.
He further said, We have seen the decoupling between the gold price and gold stocks, and at some point we will see the divergence between gold stocks price and physical price. This is the natural course of events, the ETF markets will be speculated & over purchased due to the leveraging of their ownership of stocks to actual physical ownership of gold.
How this will look no one knows but my thoughts are ETF’s will bubble above physical metals then collapse. (Think Indy-Mac & Enron) In the end it will be those who have physical possession of their metals that will be the winners.
Read further: CNBC- Gold Could Go Much Higher: Investor