Choosing a topic to write about in today’s world is usually no problem. I usually sit down for 5 minutes watching CNBC, hear something really stupid and point at the TV and say “I call B.S.” Today I got an e-mail from one of the largest gold/miner money managers in the world in response to my last piece. He told me that one of his salesmen just went to a presentation by the CEO of one of the largest miners in the world. The salesman asked him, why do they keep selling more to bullion banks? Why don’t they sell directly to the marketplace? Why not sell directly to a mint or a refiner and cut out the supply that the bullion banks use to fractional reserve or hypothecate …more gold than exists?
OK, here is the punch line. The CEO replied “I never thought of that.” Are you serious? Are you an idiot or just plain ignorant? Think about it, if some guy with a mask broke into your house and held a gun pointed at you…and then said “It’s not loaded, can I borrow some ammo?” …would you scrounge around and give him some? Don’t get me wrong, the mining companies do (will) have huge leverage to the price of gold but they are being run by complete fools!
Throughout the entire bull market the mining companies have been silent on the manipulation of their product. It has even been rare to see mining CEO’s bullish on their own product. I always thought that they were just afraid of the banks and were worried that they’d have credit lines or funding pulled, it turns out (in this case) that they are just plain stupid! Gold that gets delivered to the bullion banks seems to “multiply” like little rabbits (it’s a good season for rabbits here in Texas, I see at least 20 every morning while riding), they get one ounce and all of a sudden 3 get sold…then 5…then 10.
I won’t bother getting into the fractional reserve aspect of gold as I assume you understand it. Cutting current supply to bullion banks is the equivalent of emptying their guns! Dumping paper and forcing prices down has of course already prompted some marginal operations to either already slow production or plan to actually stop production. So why not figure this out and help yourselves? Your shareholders? Why not hold back some production like Rob McEwen did with Goldcorp some years back? Why not talk about this at an industry meeting with competitors? Are you afraid of “anti-trust” laws? Will it even matter if you are out of business? Is it legal for the bullion banks to sell 99 more ounces off of the 1 ounce that you delivered to them?
OK, enough of the tirade. The bottom line is that production is not increasing, very few are selling and demand has exploded. Inventories have and are being drawn down and price will eventually react by going higher…no thanks to the ignorance shown by those running the mining industry!