There Are Two Gold Markets

According to Chris Powell, former legislative Chairman of the Connecticut Council on Freedom of Information:

“[The] secret is that there are two gold markets–a visible market to mislead other markets . . . and an invisible market where gold is much different, and valued immensely more.”

A couple of days ago, I identified the two markets Mr. Powell is talking about.

The visible market is the 24-Hour Spot (Bid) Market. Some may prefer to call the London Fix Gold Price the visible public market. Either one fits Mr. Powell’s description.

The invisible gold market is the physical precious metals market. The most unregulated example of this market is eBay, where gold and silver coins are traded 24 hours a day between two private parties.

Mr. Powell claims that the invisible market values gold more. Why?

Because the visible market is imaginary: buyers and sellers are using paper chits to track bets between themselves about the number that the London Fix will set for the paper trades of precious metals. (ETF’s and other publicly traded investment vehicles mostly use this paper-based betting market for selling gold or silver.)

The invisible market, on the other hand, is real: it trades in actual metal, the kind you hold in your hand.

Do you doubt Mr. Powell’s assertion? Let me give you an example of what he means.

On Friday, May 24th, the following amounts were the numbers from each market:

Visible Market–Paper Trading

24-Hour Spot market closed at $1,386.30 per ounce for gold

London Fix $1,380.50 (Thursday’s quote)

Invisible Marekt–eBay Physical Metal (in your hand)

American Eagle one ounce gold coin (actual sales 5/23) range $1,590-$1,705 each

Gold, in the hand, is selling for $200 to $300 more per ounce than imaginary paper-based gold. One is a tanglible (you can touch it) asset, while the other is intangible.

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