Imagine the power of banks and commercials to simply generate any number of contracts necessary to short sell or suppress the price of a commodity. You can create these contracts out of thin air with little regard for whether or not you can deliver the underlying commodity. Because you never do.
You settle in cash. Maybe offer a premium to the holder of 20% in lieu of providing the commodity because you don't have it. You don't really care because the FED is giving you free money anyway. The US Government's CFTC has your back. They raise margin requirements making it more difficult for the holders of long contracts to take delivery of physical gold or silver. They have to prove they have the cash to settle the contract.
That is the situation in the silver and gold markets. The bankers and the US Governments Commodities Futures Trading Commission or CFTC did those things last week. It is hard to imagine what might have happened if we had actual position limits tied to some actual physical measurement of available gold and silver supply.
Those tricks have always worked in the past. They did not work last week. That should make you sit up and take notice. Big time. Silver shot through 34 an oz. briefly on Wednesday before the banks and the CFTC started working their price suppression tactics.
The put contracts traded by the big commercials, JP Morgan et.al., in just two days- represented more than a year's supply of world mining production. Do they have that kind of supply to fill contracts? Not a chance in hell.
China is accumulating gold and silver. In huge amounts. Why? Citizens know it's anti-inflation properties and they buy it. But the really huge underlying theme is that I believe China is positioning itself to remove the dollar as the world's reserve currency and replace it with the yuan. People that do not think this can happen are just as deluded as those UK souls who did not think the pound sterling was at risk to the U.S. dollar. That is the life cycle of things. I don't think China with it's vast population, intellectual superiority, and worker capacity really enjoys being bullied by the smaller U.S. They have taken capitalism to a whole new and improved level. A fully backed yuan would make mincemeat of the world's unbacked fiat currencies. What you are about to witness is China become the world's greatest economic and world superpower. It is unfolding now. We have made ourselves extremely vulnerable. Granted we won't go down without a struggle and fight- but I don't think we can win this game.
Fundamentally nothing has changed. At current price levels, 34.00 and 1405.00 for silver and gold respectively, the commodities are a screaming deal. We simply don't know the true value of precious metals because we have never seen such a scenario. There is no "price discovery" in a world where banks are allowed to suppress prices at will with unbacked paper, either currency or contracts. As demand increases I think the bankers will be overwhelmed. I simply can't envision a scenario where supply can keep up with demand from a precious metals carnivore the size of China and India.
There is no bubble. Gold and silver are simply trading the inverse of the value of a dollar. As the dollar declines- they will go up. I am increasing my allocation to a full 33% of my available assets. I do not trade paper. This is physical gold and silver. I am expecting a big ramp up in prices as May nears and the world finds out that the FED and Mr. Bernanke must continue to print unless of course the stock market implodes first. Something has got to give and soon. He who panics first-panics best.
This dude is scary. I think he could be my clone. http://www.kitco.com/ind/willie/feb232011.html