Curiouser and curiouser

Here’s an interesting tidbit about curious happenings in the gold and silver markets, from a recent interview of investment analyst Eric Sprott by Toronto’s The Gold Report:

Eric Sprott: This will sound like a conspiracy theory, but unusual things are happening in the gold and silver markets.

For example, on Feb. 19, nearly an entire year’s supply of gold traded on the Comex in a single day. The same volume of silver trading happened on the commodities exchange. You and I both know that the people selling that much metal cannot deliver it because it is just not available. Yet somehow they are out there, pounding down these contracts and keeping the price suppressed.

I would hypothesize that the central bankers know their policy of printing money is the most irresponsible thing imaginable, and they are suppressing gold and silver prices to hide their irresponsibility. When one is printing that much money, gold and silver prices are the first things you would expect to rise. If we saw gold going to $2,000/oz, the price of oil would probably go to a new high and the price of agricultural commodities would go up. Then you would have a huge inflation problem on your hands.

Based on my research, I believe the Western central banks have been surreptitiously supplying gold to the market. I say this because the demands I see for physical gold are way beyond the supply of gold. The annual gold supply has not changed in 12 years, and demand just keeps increasing from China, India, the U.S. Mint and silver and gold coin sales; even the non-Western central banks are buying gold. Where is this gold coming from? I think the Western central banks are selling gold to keep the lid on the price so everyone thinks their monetary policies are benign. Nothing could be farther from the truth.

The Gold Report: But wasn’t Feb. 15’s volume blamed in part on reports of a few large fund managers selling their gold exchange-traded funds (ETFs)?

Eric Sprott: That may very well have happened. A lot of these paper things trade together, and the gold in the ETFs is paper gold at best. I have serious reservations about whether there is actual physical gold in the gold ETFs.

When I see China buying 95 tons of gold in a month and I know that the world’s monthly production is only 180 tons, that represents half the gold. India bought 100 tons in January, more than 50% of the gold supply. Between China and India, they bought 100% of the available gold. So, where did the gold bought by the rest of the world come from? From the Western central banks, as far as I’m concerned.

– JT Long, “Unusual things are happening in gold and silver – Sprott,” Mineweb, 5 March 2013

Sprott shines a light on the elephant in the room that no one seems to want to acknowledge. As I noted in an earlier post, annual world gold production has hovered around 2,200-2,500 tons per year since 2001, or roughly the 180 tons per month Sprott cites. If two nations alone are buying up the entire world’s production of gold for the month, the gold everyone else is buying is either coming surreptitiously from existing stockpiles or, worse yet, out of thin air – ETF shares representing gold that actually does not exist!

As for the ongoing printing of money, Charles Plosser, president of the Philadelphia Federal Reserve Bank, indicated on Wednesday that the Fed’s ongoing $85 billion-a-month purchase of US Treasuries and mortgage backed securities (quantitative easing; QE3) needs to be reigned in, but he’s not a voting member of the committee in the driver’s seat – those running the show are unwilling to even hint an end to the flow of taxpayer dollars lest the stock market’s current rampage come to a halt. Federal Reserve Vice Chair Janet Yellen had only soothing words to say 2 days earlier, “… the [Federal Open Market Committee]’s intention is to leave that accommodation in place until well into the recovery.”

The hope seems to be that if we spend enough time throwing money at it, the dreamed-for recovery will put the mountain of debt incurred too far in the past to trouble ourselves about. It’s like the nonsense from Lewis Carroll’s Alice’s Adventures in Wonderland:

‘Curiouser and curiouser!’ cried Alice (she was so much surprised, that for the moment she quite forgot how to speak good English); ‘now I’m opening out like the largest telescope that ever was! Good-bye, feet!’ (for when she looked down at her feet, they seemed to be almost out of sight, they were getting so far off). ‘Oh, my poor little feet, I wonder who will put on your shoes and stockings for you now, dears? I’m sure I  shan’t be able! I shall be a great deal too far off to trouble myself about you: you must manage the best way you can;—but I must be kind to them,’ thought Alice, ‘or perhaps they won’t walk the way I want to go! Let me see: I’ll give them a new pair of boots every Christmas.’

And she went on planning to herself how she would manage it. ‘They must go by the carrier,’ she thought; ‘and how funny it’ll seem, sending presents  to one’s own feet! And how odd the directions will look!


Oh dear, what nonsense I’m talking!’

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