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Is the era of paper gold over?
The massive sell-off that shook the precious metals markets last week was not a standard correction, but a planned « liquidity event » and a « crash, » according to mining magnate Frank Giustra, who warns that the 50-year dominance of « paper gold » prices is coming to a chaotic end.
About the Era of Paper Gold in an exclusive interview with Kitco News, the CEO of Fiore Group explained the mechanics of the crash, the White House‘s recently launched « Project Vault, » and why he believes the U.S. is living « on borrowed time » and facing an inevitable monetary reset.
Friday Afternoon’s « Crash » Commenting on the 20% sharp drop in the price of gold and the collapse in silver prices, which erased months of gains in 48 hours, Giustra dismissed the idea that the move was due to fundamentals. Instead, he pointed the finger at market structure and leverage. « What happened in the metals market was not just a correction, it was a liquidity event. It happened on a Friday. Asia was closed, so there was no support. It was a Friday, and everyone who was short on silver, I am sure, participated in that drop. To me, it was an expected crash. » The sell-off was exacerbated by rapidly tightening trading conditions. After historic volatility, the CME Group increased margin requirements on Gold and Silver futures contracts effective February 2nd, forcing leveraged traders to post much more collateral. The maintenance margin for speculative Gold positions rose from 6% to 8%, and the margin on silver increased even more steeply, from 11% to 15%.
Giustra noted that the crash was « long overdue » after a parabolic rise that had pushed gold near the $5,000 per ounce mark. « In the long run, no fundamental changes have taken place. Anyone who thinks that [the parabolic rise] can continue without a correction hasn’t been in the market for very long. » The Death of Paper Gold for decades, the price of gold has been largely dictated by futures and derivatives, the « paper market. » Giustra argues that this era is drawing to a close, with pricing power shifting to Eastern exchanges that demand physical delivery.
« For the last 40, soon to be 50 years, the paper market has controlled the price of gold. It has often been used as a mechanism to suppress the price. But with increasing physical demand in China and Asia, the paper market players are losing their effectiveness. »
He issued a stern warning to investors relying on ETFs rather than coins and bars: « In a crisis, you better own physical gold… paper gold won’t cut it. If you don’t have physical gold, you don’t have gold. »
« Globalization is Dead » and Project « Vault »
The interview took place just hours after the White House officially unveiled « Project Vault »—a massive $12 billion initiative to secure critical mineral supply chains. The project, backed by a $10 billion loan from the Export-Import Bank and nearly $2 billion in private equity, aims to create a civilian strategic reserve of materials like cobalt and gallium, similar to the Strategic Petroleum Reserve. Giustra sees this initiative, involving industry giants like GM, Boeing, and Google, as the ultimate signal that the free market era is over, replaced by « state capitalism. »
« Globalization is dead. The world is dividing into blocs, both economically and geopolitically. The old [world order] is dead. »
While he applauds the U.S. steps to secure supply chains, he called the $12 billion allocation a « modest sum » compared to China’s decades-long head start. « The West is catching up. They have no choice. China controls the critical mineral market, and has for a long time. »
Debt Trap and the « End of Fiat Money » Giustra maintains his grim forecasts for the U.S. dollar. With interest payments swallowing over $1 trillion annually and the deficit growing by $2 trillion per year, he sees no mathematical way out other than currency devaluation. « We are living on credit. It is impossible to stop this train. » He predicted this fiscal trajectory will lead to a historic monetary reset. « We are approaching the end of the fiat money era. That is the only historically proven way to reset the global monetary system—to start with a complete devaluation of currencies, and then start over from zero. »
« Something Isn’t Right » at Fort Knox
Addressing global reserves, Giustra highlighted the inconsistency between China’s official gold figures—2,300 tonnes—and the massive flows of metal moving East. He agreed with estimates suggesting Beijing‘s actual reserves could be « ten times higher » and secretly stockpiled to ensure a « free trade channel » for the yuan.
He contrasted this strategy with the lack of transparency in the U.S., noting that the last audit of Fort Knox was in 1953. « You have to ask yourself why they don’t want to do an audit? Maybe it’s empty? The gold was lent out and didn’t come back. It’s all strange. Something isn’t right. »
Bitcoin Warning: « Fewer and Fewer Buyers »
While Giustra is bullish on gold and copper, he remains a staunch critic of Bitcoin, predicting a painful crash for the cryptocurrency and the Treasury companies that hold it. « Bitcoin is an asset class to avoid. There are fewer and fewer buyers of Bitcoin… The reasons people should buy it are disappearing. » He warned that leverage in the crypto system will lead to a « big collapse. »
Bibliographic reference
1. Frank Giustra says paper gold market is “losing its efficacy”
