Rick Santelli on Gold: the Garage Trade: and Paper Meat

Rick Santelli, a CNBC commentator, calls it the "garage trade."The garage trade is when you say you have a garage full of cattle and you begin to trade futures on what you say you have in the garage.But, you never open the garage door and never show anyone the cattle.Why?Because, in reality there are no cattle.I call it Paper Meat!

This is what Santelli likened to many Gold ETFs.They say you are buying physical gold but really they are executing the garage trade.They are trading Paper Gold.On this comment another commentator piped up and said that's why he thinks there is going to be increasing demand for physical gold.Only when you hold gold in your hands are you absolutely sure of what you have.

To this exchange, Carl Quintanilla referred to an anecdotal story about a shortage of physical gold in Germany where physical gold demand from German citizens far outstrips supply.German citizens just can't get enough.

This morning I awoke unusually early so I just had to check the gold price as it was trading in Europe.I have commented lately that we will likely see more volatility in gold prices for a variety of reasons.Sure enough, gold was off some $20 and then I looked at the European markets and saw major declines.My first thought was, in terms of European currencies gold prices had reached extreme highs.

Not only was gold up in dollar terms but the dollar was up huge against most European currencies.With European markets trading down and gold trading near record highs, profit taking was forced upon the markets as those who were losing in stocks and other paper assets had to sell something to lock in those profits.

Later, as I caught Santelli's comments on gold, he confirmed exactly that.Then he referred to gold's previous 1980 high above $850 an ounce and said we are still a long way from gold's inflation adjusted high.
Gold news is definitely spreading and so is gold demand.The world is in a heap of debt trouble and eventually, in my humble opinion, (but also in the opinion of those who make a living reporting on stocks and bonds) gold prices will rise.Especially when people figure out the gold they own has the same value as Paper Meat.