Dubai gold premium surges as airlines can’t cope with huge demand

Posted on 28 June 2013 with 2 comments from readers

The restrictions on freight capacity in airlines serving Dubai, one of the world’s key gold trading centres is forcing the premium on the physical metal to record levels due to a surge in demand for the physical metal now that the paper futures price has fallen so low.

The National newspaper today quotes the MD of Kaloti Gold in Dubai, Tarek El Mdaka as saying that he cannot find a place for transporting gold on Emirates, BA and Swiss this weekend. He is bringing between 1.5 and two tonnes of gold into the city every day, and it is going straight back out to overseas buyers.

Premiums jump

The premium charged per ounce has surged from $1.25 to $3 an ounce. The recent collapse of the paper gold price in the Comex futures market has brought bargain hunters to Dubai to buy gold and the city cannot deliver, ironically due to air transportation infrastructure, despite its massive recent investments in new aircraft and terminals.

However, the demand for gold from India has collapsed due to new government restrictions than ban the selling of gold bars and coins by jewelers and increased taxes.

The surge in demand for Dubai gold is from elsewhere and almost everywhere in the whole world. You have to wonder how long the price of a commodity can stay artificially depressed by paper futures when demand for the underlying physical product is so strong.

One thing that we know is happening is that the paper Comex gold market is itself being drained of the physical product as buyers of its contracts are now demanding final payment in physical metal (click here).

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Price determination

This process cannot go on forever and eventually, perhaps in a matter of months, the price determination will move to the metal itself and away from the futures pit. We could see $2,500 an ounce gold in a matter of weeks then.

Gold has been subject to one of the largest price suppressions in history and is now about to break out of the system that keeps prices down to levels that do not reflect the inflation of the past 30 years, let alone recent times.

Talk of $1,000 gold is premature. Goldman Sachs will soon be reversing its call on gold, yet again.