Despite soaring demand for physical precious metals, supply is constrained

The world will run out of physical gold and silver.  Here's some evidence, some coming from obscure news sources, as the mainstream media is not covering these events.

Barrick, the world's biggest gold miner, has their biggest mine being shut down in Chile.
http://www.trefis.com/stock/abx/articles/189839/barrick-golds-crucial-mega-mine-may-be-delayed-at-least-by-one-year/2013-06-04

Freeport McMoran operates the Grasberg mine in Indonesia, which has the world's largest gold reserves.  It is also shut down for up to a year.  Notice how the article focuses on copper--and not gold.
http://www.bloomberg.com/news/2013-06-04/copper-rises-on-supply-concern-as-second-biggest-mine-stays-shut.html

And finally Rio Tinto's Bingham Canyon mine is America's largest silver supplier, as well as a significant miner of gold, is also shut down.  Again, they mention copper, but not a peep about silver.
http://www.reuters.com/article/2013/04/12/rio-utah-slide-idUSL2N0CZ1EO20130412

I've blogged about soaring demand for physical gold and silver.  It's being reported in the major financial media outlets now.  Now I'm blogging about dwindling supply.  Usually, when a price of a commodity rises, like gold has risen from $250 to $1400 in the last decade, more supply is brought into the marketplace, as producers with a profit motive capitalize on higher prices.  Then, as supply increases, prices taper off.  It's one of the universal laws of supply and demand balancing themselves out.

THAT HAS NOT HAPPENED with gold!  Production has flat-lined, on averaging rising 1% a year, despite soaring demand from central banks, sovereign wealth funds, jewelry, investors, and in the case of silver, industrial demand also.  Instead of prices rising in the last two years, prices have declined.  This price manipulation/suppression will not last, because economic laws will eventually win out, much like gravity dictates how fast a Newtonian apple falls to earth.  It can be temporarily propped up, but remove the props and the apple resumes its acceleration.

The stresses in the physical market are showing up in the vaults of JPMorgan, the COMEX, and the US Treasury.  Readers need to educate themselves on the difference between COMEX "registered" and "eligible" inventory.

Quickly, registered is inventory set aside for physical delivery of COMEX bars to longs (owners of futures contracts).  Eligible is client inventory kept inside the vaults--they are essentially "untouchable".  However, if you look at the chart in the article below, JPMorgan was shuffling eligible inventory toward the registered category just to meet delivery demands (typically, only 1% of longs demand delivery--the other 99% are dumb and happy to receive cash settlement--or roll over their contracts to future months).  This is a form of re-hypothecation--or multiple pledging of the same inventory.  It's theft (Google Jon Corzine and how he robbed clients before MF Global collapsed).

JPMorgan, a custodian bullion bank, is running low on physical inventory.  By extension, the COMEX is also running low on inventory of physical precious metals, and could potentially default when longs demand delivery in the future.  This could happen soon at current depletion rates. But given these bullion banks are clever and will find ways to shake the trees to scare more longs out of their positions (using the GLD and SLV ETF's as another set of naked shorting tools), I believe the end of year rush to buy metals will cause the default--the so-called "force majeure" declaration.  They'll simply run out, throw up their hands, and say we couldn't help it--it was an act of God, much like a weather disaster.

And when that happens, if you're a long looking to take physical delivery, good luck on suing them with your legal claims.  This chilling disclaimer was inserted yesterday in the COMEX daily report:

“The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness.  This report is produced for information purposes only.”

That looks rather benign, but could you imagine if your bank inserted a similar footnote in your monthly statements, and declared:

"The information in your account statement is taken from sources believed to be reliable; however, Bank of (fill in the blank) disclaims all liability whatsoever with regard to its accuracy or completeness.  This statement is produced for information purposes only."

If you received that statement, you would run to the bank and withdraw all your funds yesterday.

This is the smoking gun.  It is an open declaration that their inventory reports are suspect, and the assets clients think they legally own will be settled in whatever means the COMEX wishes to settle it.  In lieu of physical delivery of bars, longs will receive cash instead.  The COMEX is preparing for the run on physical gold and silver from which they won't be able to deliver, and this disclaimer preempts any lawsuits due to non-delivery.

http://www.zerohedge.com/news/2013-06-04/jpm-comex-gold-slides-new-all-time-low

 

My conclusion:  GET PHYSICAL GOLD AND SILVER.  Do not mess with ETF's, futures contracts, certificates, etc.  More importantly, the existing and intensifying shortage is strongly bullish for gold and silver's fundamentals.  Ignore the daily gyrations and fluctuations--it's all noise.  Just accumulate, and BTFD when the opportunities arise.

This is not an investment.  Physical gold and silver do not pay dividends--there is no return on investment.  In fact, it costs money to store and secure them.  But treat precious metals as part of your savings--outside the increasingly corrupt and fragile banking system.  The window is closing.