The Big Picture: Paper Money vs. Gold


by Claudio Grass, Acting Man:

Numbers from Bizarro-World

The past few months have been really challenging for anyone invested in gold or silver; for me personally as well. Despite serious warning signs in the economy, staggering debt levels and a multitude of significant geopolitical threats at play, the rally in risk assets seemed to continue unabated.

In fact, I was struggling with this seeming paradox myself. As I kept looking at the state of the markets, I couldn’t help but wonder “what if they just keep kicking the can down the road for the next 20 years, or even longer?”

Since the peak in 2011, gold and silver have been in a strong correction period and overall, prices haven’t benefited from all the trillions that have been injected into the markets since 2008. Total credit growth was approximately $80 trillion, climbing from $160 trillion to around $240 trillion in a mere 10 years.

The major central banks combined increased their balance sheet by buying government and institutional debt from $6 trillion to $21 trillion (FED, ECB, BOJ, PBoC), but none of it went into gold. However, even though these days we read and hear these numbers so often, it is still almost impossible for the true meaning of these sums to really sink in.

A trillion is hard to truly take in and understand; $80 trillion in debt is something already so far beyond our grasp that it might as well be $100, $200, or $300 trillion and it would almost make no conceptual difference. A good way to correct this dissonance is just think about the fact that 1 million seconds are 8 days, 1 billion seconds are 35 years and 1 trillion seconds translate into 32,000 years – bringing us back to the Stone Age.


Assets held by major central banks.


PBoC balance sheet


Massive Trading Volume

The volume of paper contracts on gold and silver spiked massively and reached absurd levels, i.e. 500 paper claims leverage per oz ready to be delivered in physical form. On average, the paper gold traded in London in a single day exceeds the entire global production of the metal for that day by 600 times.  Looking closely at the leverage in the gold market, it becomes clear that this has been one of the most liquid markets with the highest trading volume for decades.

This just proves that the mainstream narrative proclaiming that gold is dead is wrong. On the contrary,  one wonders just why this “barbaric relic” commands such incredible trading volume? Unless, of course, those trading it understand that “gold is money, everything else is credit”, to quote JP Morgan.

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