Jeff Nielson: As the Christmas season passes, and the end of 2013 is upon us; this is a natural time to reflect upon what has transpired over the last year in the precious metals sector. Obviously 2013 will not be viewed as a good year, in retrospect, by precious metals investors.
This was the year of Hostage Markets; the year that the One Bank demonstrated in its own, inimitable, heavy-handed manner that it had corrupted our markets to the point where it could freeze bullion prices at any number it chose – regardless of supply/demand fundamentals. However, while these fundamentals have become virtually invisible, by no means have they ceased to exist.
Rather, in exerting absolute short-term control over bullion markets the One Bank has inadvertently once again demonstrated its (long-term) impotence against those fundamentals. When it perpetrated the Cyprus Steal to create a “precedent” for its newest form of paper-theft (the “bail-in”); the One Bank caused a stampede out of its own paper-called-gold, and an unprecedented collapse in the entire paper-gold market.
Worse still (for the Bankers), this exodus out of paper-called-gold manifested itself primarily in the form of a stampede into real, physical bullion. In part; this was a reflection of paper-called-gold holders swapping paper for metal – with the inevitable effect of a massive draw-down in Comex inventories.
However, the stampede out of paper-called-gold also caused an inevitable plunge in the price of gold, all “gold”. Thus at the same time that Western paper-holders were causing an artificial drop in the price of gold by moving from paper to metal; Eastern gold-buyers also stampeded into the market – attracted by the give-away prices created by that exodus.
Indeed, as reported earlier this year; at one point gold imports into China and India alone had spiked to an annualized rate of about 4,000 tonnes/year. This occurs in a global market where annual mine-supply is well below 3,000 tonnes/year, and falling.
Facing a new “supply crisis” in bullion markets (and again one of its own creation); the One Bank responded with its most blatantly brutal tactics to date. By manipulating the exchange rate of India’s currency to a record-low (via its now-exposed FX-rigging); the One Bank blackmailed the government of India into suspending all gold imports into the world’s largest gold market.
The Laws of Supply and Demand responded, again. Part of the frustrated demand for gold within the Indian population re-ignited gold-smuggling into India. Indeed, the government of India had spent years liberalizing trading rules for importing gold into the country precisely because gold-smuggling had previously been so prevalent. Thus it required only days to re-open those dormant smuggling routes.