GOLD’S BULL MARKET ISN’T OVER 157The point is that is that there is so much instability in the
system with derivatives and leverage that we’re not going to
get from here to there. We’re not going to have a happy end-
ing. The system’s going to collapse before we get from here to
there. At that point, it’s going to be a mad scramble to get gold.
■ The Threat of Paper Gold Default
So much of the gold market today is paper gold. We all know
dozens of different ways to get involved in paper gold. So
much of it is manipulated, which we no longer have to specu-
late about. It’s very well documented. But the whole paper
gold market rests on some physical gold. It’s like an inverted
period with a little tiny bit of gold at the bottom, and a whole
big inverted pyramid of paper gold resting on top of that.
What’s happening is that the physical gold at the bottom of
that inverse pyramid is getting smaller. You would say, “Gee,
there’s two thousand tons of mining output per year, maybe a
little more, and the gold that exists doesn’t go anywhere, so
why isn’t that little brick getting bigger instead of smaller?”
The answer is that investors have to distinguish between the
total supply, and the floating supply.
The total supply gets bigger every year by about two thou-
sand tons. People don’t throw gold to the bottom of the sea.
They don’t blow it up with explosives. They hoard it. That
means all the gold that’s been mined is still around, and new
gold keeps coming into the system.
The total supply grows every year, and when you move
gold bars from the GLD warehouse in London to the Chinese
warehouse in Shanghai, the impact on the total supply is zero.
A lot of people say that, and they’re right. But the floating sup-
ply shrinks. Now, what do I mean by the floating supply?
The floating supply is the gold — the physical gold that is
available for paper transactions. Re-hypothecation, collateral,