Manipulators Try To Frighten Market
With Gold Scrap Sales
Jeff Nielson
August 2, 2009
Part of the problem in trying to analyze the precious metals market is the lack of detailed information on supply and demand. There are no public entities which compile such data, and the few private sources of such information are dubious, to say the least - leading many to suspect these organizations are in league with the anti-gold cabal.
One of these companies is London-based GFMS Limited. This consultancy firm is the single, largest source of data for the precious metals market. Their recent "analysis" of the gold market is as questionable as some of their precious metals statistics.
A glaring example of how this data is manipulated came early this year, when GFMS released supply/demand figures for silver - published by the Silver Institute - claiming that supply and demand for 2008 was identical to 2007, down to a tenth of a ton. Given that 2008 was perhaps the most volatile year in the history of markets and given how investment demand for precious metals exploded last year, the probability that 2008 supply/demand would be totally identical to 2007 numbers is essentially zero.
Similarly dubious numbers have been released regarding silver inventories (see "Silver Market fundamentals DISTORTED by bullion-ETF's"). Between 1990 and 2005, silver inventories fell by about 90% and then (supposedly) suddenly reversed itself and tripled from those low levels in little more than 3 years, according to the CPM Group, a New York-based private consultancy.
This period coincides with the explosion in investor demand for silver, reflected primarily in bullion-ETF's. Indeed, the CPM Group added the bullion (supposedly) held by bullion-ETF's to global inventories - and it is this ETF "bullion" which is responsible for virtually all of the (supposed) rise in silver inventories.
I previously made two observations about these dubious assertions. First, there can be no justification for adding the privately-owned bullion of silver-ETF's to global inventories. In reality, the bullion purchased by ETF's should be subtracted from inventories - since this is silver which has been taken off the market.
Secondly, merely adding the "short" positions of the bullion-banks to the 430 million ounces of silver supposedly held by bullion-ETF's, we come up with a total of more than 120% of global inventories - leaving no silver for anyone else in the world.
Given that these same "shorts" are the "custodians" for most of the silver claimed to be held by bullion-ETF's, and given that you can't own 120% of anything, the only reasonable conclusion to make is that much of the silver supposedly held by these entities simply doesn't exist. This means there has been no rise in silver inventories, and this market will see a HUGE price-spike when this reality is more broadly perceived by investors, and industrial consumers of silver - who must secure their own supplies.
With this as background, a report just released by GFMS "warning" the market that "scrap" sales of gold would prevent any substantial increase in the price of gold must be viewed with extreme skepticism. To 'justify' its dubious position, all that GFMS points to is that gold didn't set a new price record this spring, despite extremely high investor demand.
Such an 'explanation' from one of the world's best-informed entities in the gold market is nothing less than outrageous. The fact is that during this same period of time, import demand from India (normally the world's largest gold-consumer) completely evaporated - at a time of the year when Indian demand is usually near its peak.
Do you think that the fact the world's largest gold-consumer bought no gold during the first quarter might be responsible for the gold price being relatively flat this spring? Do you think that one of the world's leading gold "experts" could simply have missed the fact that the world's largest consumer stopped buying gold?
This is highly unlikely given that GFMS mentions in the same article that India (along with Italy and Turkey) had sold "unprecedented" amounts of gold into global markets. Thus, it is GFMS itself which points out that the world's largest gold-consumer was a gold exporter during the first quarter.
It's hard to imagine a more bullish indicator for the gold market than a flip-flop where the largest gold importer becomes a gold exporter, and yet gold simply traded sideways. Perhaps a more bullish indicator is that as spring ended, and gold normally experiences its weakest prices that gold continued to trade sideways, remaining in a tight, 10% trading-range.
It is in this highly bullish environment that we have one of the world's foremost authorities on gold seemingly incapable of grasping all the dynamics of this market, and accurately performing some simple analysis.
To further refute the assertion by GFMS that scrap sales will undermine the gold market, I would refer to my most-recent piece on the gold market: "China replacing India as premier gold-consumer". Like many commentators in this sector I became very excited to learn that Chinese retail buyers were rapidly catching up with India, and virtually certain to pass it in the near future. Having a second, huge consumer of gold suddenly emerge is extremely bullish for precious metals.
I also pointed out that the absence of Indian demand could only be a temporary development. Most Indian demand is labeled "jewelry demand", because Indian peasants buy their gold in this form. However because the majority of India's peasants (in a population of 700 million people) do not have access to banking services, this "jewelry" represents their "savings accounts" - which they can literally carry with them at all times, in a compact form.
The idea that these same peasants will suddenly reverse centuries of behavior, and sell their gold in order to walk around with large bank-rolls of paper money is not even plausible. As these insulated consumers gradually gain awareness that high gold prices are here to stay, their motivation to sell will evaporate, and they will revert to being gold-buyers.
Again, it is hard to imagine that GFMS could fail to comprehend these truths - lending yet more evidence to the premise that this entity is another accomplice in the suppression of the precious metals market.
As I wrote a month ago in "Two short-term scenarios for the Gold Market", should gold continue to trade sideways into August, with still no annual sell-off, we should expect those who were waiting and hoping to buy gold at significantly lower prices to jump into the market soon - doing their buying before the gold market enters its period of seasonal strength this fall.
We should not be surprised that the Manipulators continue to engage in such scare-tactics, since they have been announcing and re-announcing the pending sale of 500 tons of IMF at least a half-dozen times - to try to take down the market with this non-event.
China's government has made it clear that it would love to pull out some U.S. dollars from its petty-cash drawer and buy every ounce of that gold - yet this was also supposed to "harm" the gold market. Indeed, the Manipulators were (mis)using this fact to try to induce gold's annual sell-off this spring.
Dynamics in the precious metals market continue to be extremely bullish. Do not allow mouthpieces from the anti-gold banking cabal to deceive you into failing to take advantage of the most bullish fundamentals for any commodities - while simultaneously protecting your wealth with the best "store of value" which our species has known for nearly 5,000 years.
Jeff Nielson
www.bullionbullscanada.com
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