When asked why the prices of gold and silver are falling despite the lack of recovery of the world economy, the founder of Sprott Asset Management, said:
“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”.
It is clear that the sellers of those gold and futures contracts are not bona fide hedgers, because there is simply not enough physical supply to be hedged in such a fashion. The only logical explanation is that all selling is done by speculators and to speculators; therefore the futures’ price reflects the speculators’ view on the market rather than actual supply and demand.
All critics of such “conspiracy theories” point out that the buyers of the futures contracts on precious metals have a way to call the bluff of the sellers, even if those sellers are “armed” with unlimited liquidity, provided by the worlds’ central banks. If enough buyers refuse to roll their contracts and demand physical delivery of the gold and silver bars it would force the sellers to look for physical gold and silver and either default on their obligations or deliver the metal. The critics believe that since very few buyers of the futures contracts demand delivery then the whole theory about the artificial suppression of gold prices is wrong. Actually, the only thing proven by this argument is that not enough players in the gold market believe in that the prices are artificially suppressed. If, someday, the number of those “conspiracy theorists” becomes big enough and a certain percentage of the outstanding futures contract is held to maturity, we will witness a “short squeeze” of epic proportions. In this scenario, the biggest sellers of the “paper metals”, like JPMorgan, are very likely to go bankrupt.