The Disconnect Between Supply and Demand in Gold & Silver Markets

If you only read ONE article on gold (and, by default, silver) all year, READ THIS!

It is long (I apologize Michael) but this is the truth you will not hear on MSM.

http://seekingalpha.com/a...

The Disconnect Between Supply and Demand in Gold & Silver Markets

(edited due to neoconned having kittens over its length--please click link and read entire article)

...The happiest fact of bullion bankers’ lives is that western markets are, with the exception of some fabrication and industrial demand, almost 90% paper based. The huge COMEX futures market almost never sees an ounce of real silver or gold ever change hands. It is all paper, shuffled back and forth. These paper markets are being flooded with paper based "claims" to alleged gold and silver, supposedly being held in big bank vaults in London and New York City. The market is overwhelmed with paper claims, and the big bullion banks (maybe, with the Federal Reserve providing the money?) are paying big bucks to secondary derivatives dealers to get them to lease this artificially created “gold and silver.” In a normal market, one who leases a thing of value must pay for it. But, now, derivatives dealers are being paid to lease both gold and silver. Then again, it may not be a thing of value, if it is fake…

But we don’t live in a world of free markets. Instead, we are living in an Orwellian 1984 double-speak world. Welcome to the world of Fed/PPT, where 2+2=5, blue is yellow, and black is white. All things are as they say they are, rather than as they really must be. Welcome to the world of a controlled business media, where the pundits will do anything and say everything to convince you to forget your math, and your eyesight. No, they tell you. It really isn’t so. What you’re seeing isn’t the way it is. Believe, instead, what we tell you. We can do it! We have special skills. There is a new world order. We can make 2+2=5. Just give us your money, and we’ll show you how!

But, let’s return to reality. Right now, virtually no North American precious metals dealer can give you a firm delivery date on large quantities of silver. They have no stock to sell. This means demand is robust. On Friday, as the COMEX gold price was collapsing, the U.S. Mint suspended gold bullion coin production because it cannot source enough gold bullion! That could not happen if bullion banks were selling claims to real physical metal into the marketplace. Indeed, the Mint began rationing silver bullion coins two months ago, when it started having trouble sourcing silver bullion. Word from the Perth Mint in Australia is that it is taking weeks or months to take physical delivery of gold and silver, even though investors are already supposed to own that metal. Supposedly, it is simply being kept in the Mint's vault for safe storage. But, it is getting harder to take it out of “storage”. Meanwhile, as previously stated, Indian gold and silver dealers, wholesalers and banks all have empty vaults. None of this can happen if demand is down, and supply is abundant.

We have a disconnect between reality markets and fantasy markets. The COMEX and London Metals Exchange are fantasy markets controlled by the big bullion banks. They must be engaged in market manipulation, because nothing can explain a big price collapse, in the midst of widespread shortages and robust demand. A group of big financial institutions, deeply enmeshed in the global trading system, and heavily involved in the gold and silver market, must be deliberately inducing temporary panic, for their own purposes. These malevolent characters will eventually be able to buy back their short positions at low prices, and, possibly, also, even collect a significant long position. The process is a continuing one, and hasn’t stopped yet. On Friday, for example, the subsidy for leasing gold and silver was raised to very high levels.

It is obvious what they are doing. More important, however, is why? What does it mean? Well, the PPT bank executives are generally “people in the know” about financial events, before they actually happen, sue to close relations with regulators like the Federal Reserve, and FDIC. They folks are so desperate to cover short positions, that they are willing to spend a billion or so dollars, subsidize precious metal leases, to collapse the market, and destroy investor confidence. But, why? We know that the Federal Reserve, like other central banks, sees gold as a rival to the dollar. But, that’s not enough, because they’ve never attacked precious metals with such ferocity as now, and, if the Fed were directly involved, they could probably supply real metal.

If something terrible is about to happen in the financial world, the losses that big banks would take on their precious metal short positions would put most of them into bankruptcy. Remember the words of Warren Buffett. Derivatives are the financial world’s weapons of mass destruction. Precious metals futures short positions are highly leveraged transactions that could cost hundreds of billions if the price of gold were to suddenly explode.

We can guess that the main players here are big powerful Wall Street and/or High Street investment banks who work closely with the Federal Reserve, the ECB, and the Bank of England. These people are privy to the information needed to carry out a massive manipulation as described above. No one else is. Since most of the collapse happens on the COMEX, we can assume that most of the manipulation is being done by New York based investment banks.

Wall Street’s investment banks control most of the world's gold and silver markets. They are also entrenched in the overall mesh of all financial markets. Making matters worse, because of the 1987 President’s Executive Order on Working Markets, they are authorized to work together, and in conjunction with the U.S. Treasury and the Federal Reserve, to manipulate markets without fear of criminal prosecution. They know exactly where the stop-loss orders are, and how much flooding of paper claims for gold and silver would be needed to trigger them. They are, therefore, perfectly positioned to carry out the nefarious scheme I have outlines. The ultimate aim, of course, would be to destroy investor confidence, by collapsing the price for a few weeks. This would allow them to unload their own exposure at a very low cost, while the majority of market participants are temporarily shell-shocked, and in retreat.

As noted above, they are not using real gold or silver to do this. That implies that this particular attack on gold was not authorized by the Federal Reserve. They’ve never had any real silver and have used paper claims for years to manipulate that market. But, gold has often been supplied out of the U.S. hoards at Fort Knox, West Point, or the NY Fed. I suspect all three have had their gold hoard so heavily loaned and swapped out, that there is little or no physical gold left to play with. That’s why the Federal Reserve has been pushing for the IMF gold sales. The vaults are probably already filled with IOUs from the likes of Goldman Sachs, JP Morgan, etc. Perhaps, that is why the Treasury Department lists total U.S. gold holdings as "gold and gold swaps", and refuses to disclose details how much consists of real gold and how much consists of swap IOUs (loaned out gold). But, anyway, the lack of physical gold probably implies that the Federal Reserve is not involved directly, because they probably still have enough to flood the market for a week or two.

But, it’s not cheap to manipulate markets. It will probably cost over a billion dollars to subsidize the negative lease rates. The only logical reason to spend such a huge amount of money, is if you are going to get an even bigger benefit from doing so. They must be very worried about losing far more. Once again, that implies that some VERY bad economic news is about to be released. Skeptical? How much worse can the economy get? It can get much worse! So, what’s in store? A series of huge bank failures, maybe? IndyMac collapsed two weeks ago. Are we going to see the collapse of Washington Mutual (WM)? National City Bank (NCC)? Someone else?

I don’t know. But, I do know this. The FDIC will not have enough cash to make good on its insurance pledges, if they fail. The FDIC only has $37 billion left in its trust fund, after paying off IndyMac depositors. Between its two major divisions, WaMu has total deposits of about $204 billion. National City has about $101 billion. Could FDIC turn to the Federal Reserve for a quick loan? Not a chance! The Fed has its own problems. It has already polluted its balance sheet with some $450 billion in low value and absolutely worthless mortgage paper that its client banks wanted to get rid of.

Depositors might wait months for their money, while Congress is petitioned to approve the sale of more Treasury bills. This delay would be likely to cause other depositors to make a run on other banks, creating a domino effect. Then, more banks might fail. More bank failures will require yet more dollars, and cause more delays in making depositors whole. At the very least, the sudden issuance of $300 billion new dollars would stimulate massive inflation. Under such circumstances, gold could be expected to explode to the $2 - $3,000 per troy ounce range, within a matter of a few weeks or months.

Update: I just found out that Kitco, one of the biggest precious metals dealers in North America, just posted the following notice:

IMPORTANT NEW NOTICE: Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products. Please note that you can continue to place orders and prices will be guaranteed; however, cancellation fees will still be applicable regardless of the length of the delay. Consequently once inventory is received there may also be delays in processing and shipping by our vaults. (italicized emphasis added)

Sounds like a severe shortage to me, when someone will take your money, and then, even if it takes two years to deliver, and you cancel, they force you to pay a penalty!