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The gold price is not always the same as “the price of gold”.

24 March 2020

Written by Ralph Hazell

Banking

The gold price that is quoted in the world financial markets derives its value from the “paper” markets and this means mostly the gold futures contracts listed on COMEX and ETF’s (Exchange traded funds) that are listed on the world’s major stock exchanges.

The price of gold is what you would pay for an amount of physical gold, which you directly own, and no-one else but you has any legal title over.

In normal times, the two prices are the same (albeit there are small differences in buy and sell prices amongst different industry players). But when enough people decide that they would like to “exercise” their paper gold into physical allocated gold, there will be a rush to the exits. It is regularly quoted that the outstanding amount of value held in paper gold is 100 times more than the amount of physical gold in existence.

If this happens there will be some disappointed gold investors who thought they owned gold when they actually just owned a security with a lot of counterparty risk.

Rumours of physical gold shortages are starting to come out. There may have been a lot of selling in the paper gold markets in recent weeks, on the back of margin calls and general market disruption, but the physical gold dealers are reporting a large increase in demand.

Physical bars and coins are still being made at the big refineries but even this activity is at risk from supply chain disruptions as they confront possible staff shortages and of course the movement of raw materials from the worlds’ gold mines to the refineries. This could feed through to a natural premium in physical which would be the prelude to a disconnect in pricing between the paper gold and physical gold markets.

The central banks have now well and truly turned on the monetary taps. Trillions of dollars of new money has already been created to try and contain the brewing financial crisis. Where does all this new money come from? The world’s central banks are doing the digital equivalent of printing money, which is increasing the amount of money in circulation and this will eventually feed through to the value of our savings.

The banking system has entered an historically dangerous period. The probability of bank defaults has increased dramatically as bad debts and bankruptcies rise. This will mean that customer’s bank deposits are also at risk. I envisage that there is a chance that banks will put a daily limit on withdrawals and general access to your bank account.

The other key risk is that the value or purchasing power of your savings will go down as the central banks print money and the possibility of hyperinflation increases.

Tally protects you from bank default and from hyperinflation. When you own Tally, you have direct ownership of a weight of gold (1 Tally = 1 milligram of gold.) which is your legal title, and cannot be touched by liquidators in case of default.

Gold has thousands of years of history as a store of value and is always a go to “hedge” against hyperinflation and central bank recklessness.

For as long as the traditional banking system is functioning you can access your Tally easily through the Mastercard network and the payment rails.

And if the payment rails were to fail then we can just start paying for things in Tally. We enable our customers to transfer Tally to other Tally customers in real time and for no fee!

This way we can bring gold back into the banking and monetary system where it belongs!