Bill Holter

Supply and Demand WILL Matter!

October 14, 2014

Whether or not the prices of gold and silver have been "suppressed" has been a topic for several years now.  The "no manipulation" camp has argued from "governments and central banks don't care, to the regulators have found nothing, a scheme this far and wide could never be kept secret, to it doesn't even matter."

It does matter, it matters a lot!  It matters because if even just one market is "rigged" it means there can be other markets rigged.  If gold and silver prices are rigged then by definition since they are the direct competitors of government issued currencies, the currencies are also priced incorrectly.  It means the currencies are valued "too high".  It means that governments can issue currency which is valued too high which gives the issuing government more power than they should have based on fundamentals.

This past week Koos Jansen put out an article with a transcript of a speech given by Xu Luode, chairman of the Shanghai Metals Exchange.  In this speech given in June, Mr. Luode said on three different occasions his exchange supplied 2,000 tons of gold in 2013.  He said this gold was "supplied to Chinese consumers."  I have several observations on this, first, kudos to Koos Jansen because this confirms what he has been saying all along by following Chinese imports of gold.  Secondly, it appears that I and others who have done this math may have been wrong in thinking it was the Chinese government doing the accumulation.  This speech argues the demand has come from the population or "consumers," regardless, this was confirmation China is chewing up 2,000 tons of gold in a world where only a total 2,700 tons are produced per year (including Chinese production).

Going one step further we can add roughly 1,000 tons of demand which comes from India bringing the total demand to 3,000 tons versus new global production of 2,700 tons.  This is only 2 countries!  What about demand from North and South America?  What about Europe and the rest of Asia?  Or even Australia?  Do you see where I am going with this?  "Where" is the extra gold coming from?  Please don't tell me "scrap" as I am sure you have already seen your local "cash for gold" shop pull up stakes and close ...because grandma's old earrings have already been sold. 

The supply can only be coming from where it is (was) held, the central banks themselves.  Another "please don't tell me" would be that central banks would never ever sell gold to suppress the price and create enough supply to portray "plenty."  The central banks have already done this and done it in a public manner.  Remember the "London gold pool" back in the late 1960's?  Do you remember August of 1971 when Nixon closed the gold window and we found out that our holdings went from 20,000 tons to just over 8,000 tons?  We "lost" 60% of our holdings back then in an effort to keep gold at $35 per ounce, why is it now impossible that central banks have again tried to suppress the price of gold?  Do you believe central bankers have matured, grown consciences and learned by their mistakes of the past?  All you need to do is look at money supplies and the amounts of debt the central banks have underwritten to see this is not so.  Or better yet, what have their responses to the financial crisis been?  Exponentially higher doses of the poisons that got into the mess in the first place, that's what!

Getting back to supply and demand, it is clear demand for gold has been outstripping new supply for many years, Frank Veneroso first wrote about this nearly 15 years ago ...yet the price has been dropping for the last 2 years.  Let me ask you this, what price would the stock of IBM be trading at if someone was able to print up a few billion extra yet "fake" shares out of thin air and sell them as real?  How can 50% of global silver production be sold on one market (COMEX) within 36 hours and then shortages suddenly appear?  If silver was truly sold then it should be so plentiful that picking it up off the street would give you a sore back!  If silver was sold and was plentiful then why has the U.S. mint suspended sales several times over the last 3 years?  The answer of course was they ran out of supply and could not source what was supposedly "so plentiful," that's what.

Before finishing on supply and demand I want to pose a trading scenario with you regarding just 2 banks or traders.  If the regulators turned a blind eye, what would prevent Bank A from selling 25% of global silver production on a Monday while Bank B "tepidly" bought throughout the day?  Then on Tuesday, Bank B sells whatever was bought on Monday plus say another 10%-15% of global production, while bank A "tepidly" buys what is sold and thus "flattens" their position with a huge profit in hand?  Of course Bank B is still short but the sentiment has turned bearish, not to mention the margin call liquidations their sales have created.  Bank B will worm its way out of being short by "buying to close" their positions from scared ...and forced liquidations.  So bank A probably made more than Bank B without working as hard. The gentleman's agreement will be reversed the next time and Bank A has to do the heavy lifting.  I wanted to mention this scenario because so many have asked me "how" it could possibly be done, this is how.

Physical supply and demand has been "made" to not matter over the last 2 plus years but it will, eventually.  It has mattered over the last 15 years and was evidenced by price.  The "operation" we have witnessed to depress gold and silver prices has been masterful with one exception, by definition "the game" has to end when the supply runs out.  The speech given by Xi Luode has thrown a bit of a monkey wrench in my thinking as he said "consumers."  Now I have to wonder about their "official" or state purchases.  In my mind I can only imagine they are all lumped together and this figure of just over 2,000 tons is the sum total.  If this is not correct then it means the total demand is even higher than this confirmation.  It would be very difficult to believe central banks could be supplying a more than 2,000-2,500 ton deficit but we have lived through more strange events than this since 2008?

The bottom line is this, total global demand is and has been outstripping supply ...and for many years.  The available "stock" must be running very low and while temporarily it has been made to look like supply and demand don't matter ... it will!  Like the saying goes, "it doesn't matter until it matters," but in this case it will matter greatly because once it is "allowed" to matter there will be little to no supply available as the ammunition has already been spent.  This is not a head scratcher in any fashion, short term the prices have been depressed by issuing "fake supply."  Price will readjust violently once the true stock and supply is revealed.

TPTB Losing Control Of Paper Markets - Physical Markets Next!

October 13, 2014

It's Monday morning and the New York Fed's new "Chicago office" has been busy all night attempting to reverse the expanding collapse of global financial markets. Their pitiful efforts are attempting to mask the gaping wound of global economic collapse; and thus, whether they can will the "Dow Jones Propaganda Average" to reverse to the upside in time for next month's elections is a 50/50 shot at best. Irrespective, few people could care less, as retail participation in the equity market has plunged to record low levels, care of 15 years of stagflation and two epic market collapses.

Global financial markets are in FREEFALL, irrespective of what the world's best funded most technologically sophisticated market manipulation organizations - i.e., the U.S. President's Working Group on Financial Markets, Federal Reserve and Exchange Stabilization Fund - are doing. Sovereign yields are collapsing, led by the 16-month low 2.25% yield on the benchmark 10-year U.S. Treasury bond exposing the "most damning proof yet of QE failure." Even the "New Hail Mary Trade" - of the Fed goosing Treasury yields early in New York trading hours and again at day's end is failing miserably against a veritable tsunami of demand. Heck, just last week, U.S. bond funds witnessed their largest capital inflow ever; and this, despite massive liquidation of the world's largest bond fund group, PIMCO, after Bill Gross left. And now that the Fed itself admitted failure - in last week, disclosing its fears of a global slowdown - the entire world is starting to realize Whirlybird Janet is not only unable to stop it, but will shortly not only reverse the "tapering" but overtly announce QE4.

Commodities, too, are collapsing, as are global shipping indices and real estate markets from West to East. And more importantly, depicting what we deem the "single most bullish precious metals factor imaginable," currency markets are wildly fluctuating wreaking havoc on global trade; increasing inflation of "want versus need" items in "emerging markets"; and - of course - taking the "final currency war" to a new ominous level. Last week's FOMC minutes revealed a Fed as fearful of a rising dollar as the ECB is of a rising Euro, the BOJ a rising yen, etc. - of which, the only "cure" is more money printing.

And thus, the "race to debase" is about to launch into hyper drive, as exemplified by the shocking comments of uber-dove Charles Evans, President of the Chicago Fed and a 2015 FOMC voting member; who this weekend, averred that a stronger dollar is an "obstacle to the Fed's ability to meet its inflation mandate" - calling it a "headwind" as it will lead to lower import prices. No, readers, that's not a typo. The Fed actually thinks falling import prices is unfavorable - and thus, will do "whatever it takes" to make sure the cost of living increases for the "99%." But don't worry, since all that ZIRP, TARP and QE money goes directly to the world-destroying banks - and the aforementioned "manipulation organizations" - the "1%" will do just fine. That is until hyperinflation "comes to town."

On the topic of cataclysmic PM-bullish developments this weekend, there were quite a few - starting with Iraq begging the U.S. to send 10,000 ground troops as ISIS is not only on the verge of taking over key strongholds in Syria, but Northern Iraq (where the massive Kirkuk oil field lies), and Baghdad itself. In Europe, whilst "Goldman Mario" complained the Germans are "impossible to work with," all manner of political and economic hell is breaking loose - as it commences its own suicidal version of Abenomics. Friday night, S&P downgraded France's outlook from stable to negative, and the ECB is considering swapping some of its U.S. dollar reserves for Yuan - as are the Russians, which not only sold $53 billion of U.S. treasuries last quarter, but signed a $25 billion currency swap agreement with the Chinese.

Here in the United States of Economic, Military and Social Devastation, "earnings season" starts this week with even Goldman Sachs forecasting disappointing results and guidance; partly due to the collapsing economy, and partly the "strong dollar" which causes foreign earnings to translate into less dollars. Meanwhile, for the first time this year, consensus economic data expectations - including "island of lies" reports like diffusion indices - are declining; and lo and behold, the Fed is today executing a joint "war-game" effort with the Bank of England in preparing for the "potential" of a major bank failure. I mean, why would they possibly do that? And the most hilarious part of all, is that the Fed published a study this weekend warning of the potential for increased market volatility in a higher interest rate environment. Earth to Janet, rates are not only not going higher, but to ZERO - as the entire world front-runs "QE to Infinity." Only when hyperinflation inevitably results will rates go higher; but when they do, economic "policy" will be moot as social chaos, draconian government, and war will be far more pressing issues.

Last but not least, the most important headline of the weekend, strongly validating today's article title. In an environment where mine production is likely to utterly collapse, as evidenced by the shocking 50% plunge in miners' capex since 2012, the Chairman of the Shanghai Futures Exchange himself "admitted" Chinese gold demand was above 2,000 tonnes in 2013 - validating numerous private estimates and confirming, without a doubt, Central banks have secretly dishoarded reserves to avoid default. After all, just 2,770 tonnes were mined worldwide; and thus, China consumed more than 70% of all global gold production, despite having just 20% of the world's population. And given the fact the Shanghai Futures Exchange's silver inventory plunged more than 90% this year to a measly $50 million, it's safe to say private estimates that global silver demand were also at record levels are spot on as well - and accelerating as U.S. Mint Silver Eagle sales were faster in the first two weeks of October than at any time this year.  

SRSRocco Report

SRSRocco Report

And just as TPTB slowly - or perhaps, not so slowly - lose control of paper financial markets, the same will inevitably occur with precious metals. Last night the streak of 70 straight "Sunday Night Sentiment" raids was broken - i.e., a Cartel-generated "anomaly" with one in a sextillion odds of occurring in a freely-traded market. They still fought back with a typical "2:15 AM" raid - of which, I'm too tired to calculate the odds of occurring 90% of the time over 350 trading days. However, as I write at 10:45 AM EST, gold is back up to $1,230, as stocks fall sharply and the 10-year Treasury yield approaches 2.25%. In other words, the "exception" in "2008, with just one temporary exception" is on the verge of being eliminated.

In June 2008, Helicopter Ben stated that "the risk the economy has entered a substantial downturn appears to have diminished," just one year after stating, "Problems in the subprime market seem likely to be contained." You'd think Federal Reserve Presidents would be smart enough to avoid such phraseology in the future; but think again, as Cleveland Fed President Loretta Mester, just three weeks ago, said, "Financial stability risks in U.S. are well-contained." Well, looking at the global paper markets - and the aforementioned Fed "war games" - it appears she may have spoken too soon. First up, the battle for the paper markets are lost, followed shortly thereafter by PHYSICAL gold and silver.

Andy Hoffman joins Kerry Lutz of the Financial Survival Network to discuss the U.S. stock market, Chinese gold demand was above 2,000 tonnes in 2013, currencies collapsing around the world and U.S. Mint Silver Eagle sales at fastest pace of year.  To listen to the interview, please click below.  

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