The Disconnect Between Supply and Demand in Gold & Silver Markets
By - August 20, 2008

IMPORTANT NEW NOTICE: Demand for bullion products has increased significantly in recent days. As a result, we may experience delays in supply and possibly delays in processing and shipping by our vaults. We apologize for this inconvenience and will do everything in our power to service your orders as quickly as possible. While cancellation fees still apply, prices are guaranteed regardless of the length of the delay. We remain committed to providing you the best service no matter what market conditions prevail. – Kitco

Dominant Social Theme: We don't have honest money right now. But we'll get it for you. We really will.

Free-Market Analysis: Almost every day now comes word of a new glitch, a new hold up. Gold and silver are harder and harder to come by. Such scarcity remains explainable, at least if you believe the rationales. The US Mint for instance has seemingly stopped selling both gold and silver eagles, but this can be explained by a temporary bottleneck in blank coins. Kitco is having trouble filling orders because "demand for bullion products has increased significantly in recent days."

We're not sure we know what is going on, but we are past agreeing that there is NOTHING going on, that it is all business as usual. Why? Because even as supplies tighten up evidently and obviously, the price of gold managed to descend over the past months by nearly US$200.

A metals scarcity and a price drop at the same time – explain please. … "Prices are so low that there is a temporary rush to buy." Hm-mm does that make sense? If prices are low because no one wants the stuff, then gold and silver wouldn't be in demand, would they? But seemingly they are.

A recent article making the rounds on the ‘Net entitled THE DISCONNECT BETWEEN SUPPLY AND DEMAND IN GOLD & SILVER MARKETS makes some rather clever speculations on how this is all taking place.

What it suggests is that while the world's biggest central banks and investment banks claim to have plenty of gold and silver in their vaults, they actually have a lot less than they maintain. They've leased it out many times over in order to put a lid on advancing gold and silver prices. We've heard similar speculation before, mainly from GATA. Now, with supplies obviously pinched even as the market has made several recent new bottoms in gold and silver, the argument for market manipulation seems ever more serious.

Here's an excerpt from the article:

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. … 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. … 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.

After Thoughts

These market manipulations take time to be exposed. And the rewriting of history makes it even harder to find out the truth. But the Internet itself has given us a window into the manipulations even as they are taking place, a fact that the manipulators themselves, whoever they are, must be finding fairly awkward. As a result, a lot of things that might have happened "under the radar" in the 20th century, or even the 19th are being scrutinized by millions of interested investors.

We're not clever enough to speculate as to when it is all going to unwind, or even if it will. But we're fairly confident you can't fight markets over the long-term. At this point, the idea simply seems to be to put off the day of reckoning in the hopes that it may not come.

What are we doing about it, besides write about it? We'll continue to buy physical ounces of gold and silver; if we buy any paper, we'll be tempted to take physical delivery! Let enough take physical delivery and the truth, as they say, "will out."

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