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How to handle the shortage of physical gold? 

I got my first reader questions yesterday.

gold shortage

I would like to own 25% gold in the next months, since I believe that a real market crash will occur that will ruin most of our financial markets. But first I think there will be a rebound so I only want to own 10% gold now. But as I already can see today, there are bottlenecks in how to get physical gold where I live. Do you have any suggestions?

A very good question! In fact there is a way to get around this problem, so the answer is yes!

With all the financial turbulence and buy recommendations we now get on gold from everywhere, the Swedish gold retailer, Tavex, as of yesterday, announced that they, were out of gold.

However, these alarming signs usually means that we are coming to a temporary plateau for the gold price, and that you will most likely have plenty of days to buy your physical gold. But I want to stress the word usually. But do not panic and see what I would have done in the example below:For example let us say:

  • You want 1000 oz. of physical gold as a maximum.
  • Today you think that the gold market has overreacted, but just to be sure you want to own 500 oz.
  • So you buy that 500 oz. today electronically.
  • When you get hold of your 1000 oz. of physical gold you will have a total of 1500 oz. of gold, which is 1000 oz. more than you want today so you go short/sell 1000 oz. of gold electronically.
  • Now you are 1000 oz. invested in physical and minus 500 oz. in electronic gold for a net of +500 oz.
  • Finally when you think that you want to be fully invested you buy back those 500 oz. that you shorted in the market.
  • Then you own 1000 oz. of physical gold, but zero oz. of electronic gold. You are safe!

 

If there is to be a real panic. Let say the stock market crashes 10% three days in a row. At that time there may be a real shortage of physical gold for some time and you may even have to buy it significantly above market price to get it.

The only downside to this strategy is that this will add a slight transaction cost, but it guarantees me that I will own the right amount when the time comes without having to think about where and how to get it. And at the same time it will let me have some room to ease my position when I think that the market has overreacted.

 

By hedging my physical gold with electronic gold I will:

  1. Easily always have the amount of gold that I want at any time by regulating it in my trading account. 
  2. Be fully secure in case of that my bank or brokerage firm goes down.
  3. Have instant access to my gold at all times.

Keep those questions coming.

See my previous article about investing in gold in general


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