Real v Paper - Demand v Supply

Posted | 02/12/2014 / Views | 2909
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As the price action of the last 2 days has you scratching your head, our quote of the week comes from market analyst Bill Holter and it captures the current situation beautifully:

“As of this past week, Silver Eagle and Maple sales are on track to at least meet last year's record sales and are now running FIVE times higher than in 2007 (before the financial crisis began)!  We also know GOFO rates are the most negative with the exception of one time in history. The silver inventory in Shanghai plunged again this past week and is now again under 100 tons. For perspective, this inventory was over 1,100 tons just over a year ago and has been bled by over 90%. In just 2 days last week, 21% of the inventory was withdrawn ...and what's left is now "worth" under $50 million (with a lower case "m").  Silver contracts in Shanghai are also in backwardation, another perfect example of short supply. Refiners in Switzerland are running flat out 24/7 due to Asian and Middle Eastern demand and to top things off, India just eased restrictions on gold imports. When added together, China, Russia and India are taking nearly 150% of global gold production via physical purchases. To put it in further perspective, China has the financial ability to purchase ALL central bank gold reserves at current "prices" THREE TIMES OVER!

So, what is my point? Something very drastic has to and will happen.  One market or the other is very wrong. Either the paper price is wrong ...or, the physical market is wrongly displaying all the signs of a supply shortage. Can you figure out which one is wrong?  Is it the market where "gold" can be created at will or the one where it is actually dug up out the ground?  I will say this in my opinion, I cannot understand who in their right mind would trade a COMEX gold or silver contract?  Would you gamble in a casino where you knew the games were rigged ...and not in your favor?  What is the purpose of trading pieces of paper that the exchange itself admits they don't have enough metal for everyone? …………….

Low price has already, and will create excess demand and also cause a shrinking supply since mines cannot make money producing at these levels. While COMEX can and has created the price, they cannot create the supply necessary to satisfy the greater demand. COMEX, by forcing the price too low have set in place the fundamentals for a "re pricing" in explosive fashion.”