Here is a fascinating interview with Ned Naylor-Leyland, a precious metals expert with Quilter Cheviot Investment Management. Naylor-Leyland explains the coming divergence between the physical and paper gold markets and how mainstream media doesn’t grasp just how large the daily gold market is.

He also discusses the ongoing Eastern demand for physical gold, especially in China. Did you know China has twice as many retail bullion shops than the United States has Starbucks, Subway, and McDonald’s locations combined?

Running length 00:26:04

Highlights from the interview:

“The weight of money in the [gold] sector is enormous. The Financial Times reported a few weeks ago that gold is a tiny market with only $20 billion a month traded. When of course the real number is somewhere between $250 billion a day and $300 billion a day. This gives one an idea of the lack of knowledge in the mainstream investment press about gold, but also the sheer weight of money that goes into it…

“The arbitrage opportunity that happened in the 1960s, where the price set by central banks effectively was $35 an ounce and the physical demand and the real price in Asia was that much higher. That created an arbitrage opportunity that eventually broke the London Gold Pool and led to gold rising eight to nine times in price on the back of it…

“The Chinese rolled out a very aggressive gold liberalization program… On the retail level there has been this massive rollout of bullion outlets, whether it be within banks or bullion shops… The World Gold Council’s figure was that there are now over 100,000 bullion shops in China, which is double the equivalent of Starbucks (SBUX), Subway, and McDonald’s (MCD) put together in the United States. I think that is obviously a secular trend designed to hedge exposure to the issues of the dollar as the world’s reserve currency and the fact that it is manifestly losing that status bit by bit…

“Once you… support the public’s consumption [of gold in China], then it’s a natural thing that the physical market will move across there. That’s a trend that I observed as being fairly inevitable. The Chinese and Indians don’t think that gold his anachronistic. They think that fiat money is a tool of government in a way that in the West we don’t look at it like that…”