Sinclair:  “I think it’s critically important for investors to realize that the COMEX warehouse is not going to wait for significant further declines in their inventories before they adjust their settlement mechanism.

Yesterday we pointed out that during the Hunt crisis there was this type of adjustment made by the COMEX  Board of Directors.  We also quite clearly demonstrated that there is a strong correlation between the present lack of supply in the gold market and what happened back in 1980.

So any further significant drawdowns on the COMEX warehouse are going to cause to the COMEX go to a new type of settlement....

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“This will be either a cash settlement, or settlement in shares of an exchange traded gold ETF.

For many retail investors around the world they are dialed into the paper market in various exchanges.  The second market is a small one, but popular among retail investors, and that’s your corner or even major coin dealers.  But neither of those are in fact the real gold market, which is the cash market for gold.  This is the cash market for 400 ounce deliverable fine gold bars.  That represents the true price of the market on any given day.

So what people need to understand here is that as the paper markets go into the dustbin of history, at that point the real price of gold will be immediately discoverable.  As the paper market burns up I would be surprised if it took more than two days for the physical market, not the coin dealers, but the real market, the 400 ounce deliverable market and Asian type settlement, to become as popular as the COMEX contracts are.

For the first time yesterday there was significant attention given in the mainstream media to the physical market for gold, especially the US Mint selling out of their small denomination gold coins.  So the general public is hearing about a demand on the physical side of the gold market that is not evident on the paper side.

But here is the important point, as long as the physical market sells at a significant premium above the paper price of gold, the COMEX warehouse is going to be significantly drained.  You will also see the market, between various dealers and interbank 400 ounce gold bars, will also act like a vacuum in terms of the exchange warehouses.  Meaning that will also serve to deplete the COMEX inventories.

So there is no question that the central planners’ move to take the gold market down has put the COMEX market in trouble.  Put another way, this is the beginning of the end of the paper gold market being the superior price setting mechanism.”

Eric King:  “Jim, what will be the net result of the failure of the paper gold market?”

Sinclair: “It will release the tools of manipulation and allow the physical price of gold to find its own level.  It will also lead to a tidal wave of demand for physical gold.  The failure of the paper market will be as if you pulled back the curtain from the real condition of gold, which is currently in very short supply. 

The bottom line here is the failure of the paper market in gold is going to result in extraordinarily increased demand for the physical metal, and a new record high price as the physical market for gold begins to take its rightful place as the lead price setting mechanism.  This will also be the beginning of the end for the gold shorts.”

***IMPORTANT - The first Jim Sinclair Q&A meeting is completely sold out, but a second meeting was added due to overwhelming demand in Los Angeles on Sunday, May 19th from 11 AM to 3 PM.  For details and to sign up to attend this event while seats are still available CLICK HERE.

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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Eric King

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