We have watched the paper prices of gold and silver get crushed last Friday and again on Monday. Both days saw huge volumes of paper contracts dumped in “all or none” fashion in very tight time frames that had the effect of crashing price. We know through plain old common sense that “intent” was involved because no real holder of gold or silver would ever sell in this fashion and depress the value of what they’d walk away from the sale with. We also know that other than central banks there are no entities that hold “supposedly” an amount of gold in the 1,000+ ton range except for the ETF GLD. So who was it? The CFTC says, “We’re working on it.” We should not hold our collective breaths as they have been investigating the silver market for going on 5 years yet still nothing but crickets can be heard. The paper trails left behind are so obvious that Mr. Magoo would have needed only one day to come to a “guilty of manipulation” conclusion AND fingered the perpetrators. They are not fooling anyone.
However, for any action there are always unintended (or in this case “unavoidable”) consequences. As I’ve written about all week, physical demand has exploded, premiums have risen and inventories eaten away at. The US Mint sold more Gold Eagles yesterday than any previous day in its history. They are also on pace to sell more gold than any previous month in its history as we are barely more than half way through April and they are near the previous record month, January of this year). Does that make sense? 2 of the previous 4 months were record volumes yet price has dropped slowly over those 4 months culminated by the largest price drop in 30 years?
The recent selloff was conducted under the “Bob Rubin platform;” do whatever you have to do to buy 6 months’ time and kick the can down the road. Hopefully something, somehow someway will turn up and the problem fixed… but the real world doesn’t work this way. “Hope is the vestige of fools.” What they have now accomplished is that basically a “run” by the American public on metal and visible shortages in silver. NOTHING creates more demand on anything than a “shortage.” When you tell someone that they cannot have something they will want it even more… As I’ve said, Mother Nature does work and will not be denied in the physical markets. Demand since last Thursday has MORE than doubled. I am not talking about “demand” in the US (though it has). I am talking about demand everywhere on the planet. I have seen reports out of Switzerland, Japan and most importantly India (who regularly purchases better than a third of global production) that physical cash and carry buyers have come out of the woodwork and demand has basically doubled this week.
Many of us who do the play by play writings have said all along that it would be the physical markets that would blow up the paper game. Last Friday and Monday have shown you just how close we must have been to default to elicit as blatant a response as selling (on paper) close to half of the world’s global gold production in 48 hours. The process of physical metal running out has been sped up, whether or not the May delivery month is passed without a default I do not know. It doesn’t matter. The cartel showed their hand and the “free press” portrayed what happened last Friday and Monday as a “selling panic.” They were correct 100% in their assertion… what they didn’t do was tell you who was doing the selling and who was doing the panicking. It surely was not the public… everywhere on the planet, because they were buyers to begin with, now they are bigger buyers! Talk about shooting oneself in the foot!