During the last decade we have become accustomed to structural short gold positions by the banks. This has been one of the main instruments in their war on gold: maintain a constant selling pressure on paper gold, and the gold price will not rise excessively. There is no other explanation for these short positions, as a rational investor in a bull market will not go structurally short. Despite this pressure, the gold price has risen from about $350 to the current $1,370 in ten years, which shows the fundamental strength of the flight to hard assets.

Over the last six months, however, the gold strategy of banks has changed radically from a very large net short position, to a record long position. Never before were there so many long positions on the Comex by banks as in the month of April. It is conceivable that the sharp drop in the gold price in April made ​​it possible for banks to terminate their short positions for long contracts, and it is certainly no major leap of the imagination to believe that this might have been the real motive for the extreme drop.

See the chart here: http://bullmarketthinking.com/wp-content/uploads/2013/06/banks-long1.jpg

Was this the final offensive of the banks in their fight against gold? And what does this say of the banks’ outlook on the gold price? It could be that these insiders are anticipating a large upward movement in the price of gold, a move that may be just over the horizon.

Didier Drogba, star soccer player from Ivory Coast, and last year winner of the Champions League with Chelsea, has taken a 5% interest in a gold mine in Ivory Coast. The mine is called Ity, a relatively small mine which produces 31,000 oz of gold annually, and in which La Mancha Resources has a majority interest (no position CDFund).

We recently learned that his fund has acquired a stake in Tasman Metals, one of our investments in the rare earths (REE). Tasman is expected to become the main European producer of the key heavy rare earths (HREE). These HREE are indispensable in high-tech and green-tech applications, and are now only produced in China. Tasman’s products will likely be purchased by a number of German car manufacturers and electronics companies. This focus on the European market fits well with the strategy of Soros, himself a Hungarian, who is aware of the value and potential of this strategic commodity.

According to reports, it was originally Soros’ intention to buy-out Tasman in its entirety, take it off the market, set it up to become a fully integrated REE company supplying the European market, and bring it back on the market via a public listing. The low REE prices and uncertain demand of recent years, have deterred Soros from executing his strategy. The market seems to be gently turning now that Japanese carmakers and high-tech firms are almost at the bottom of their inventories, and need to return to the markets for a fresh supply of REE.

Agnico Eagle has used the same strategy of replenishing its reserves for years. First, a minority position in promising exploration companies is acquired. Then, after successful further development, the company is taken over, allowing Agnico to build and operate the mine itself. In this way, the risky aspect of mineral exploration is outsourced, as it were. After several years of bad luck, Agnico now seems to have turned the corner, and it clearly sees great opportunities in today’s extreme undervaluation, allowing the company to acquire significant stakes in good exploration companies at extreme discounts.

The other three companies in which Agnico has recently acquired a 9-10% interest, are also companies the Commodity Discovery Fund is invested in. These are Atac Resources – a gold discovery in northern Canada, Sulliden Gold – a future gold mine in Peru, and Kootenay Silver – a silver discovery in Mexico.

With the soaring costs of recent years, it has become increasingly clear how poorly the miners have been operating. Despite rising commodity prices, they have performed poorly, and have added virtually no value for shareholders. Now, for the first time in decades, they are being held accountable, and this led to a wave of CEO resignations, last year. The new directors are forced to provide a new focus. They are now reducing costs and improving operational efficiencies, rather than the historical focus on the expansion of reserves and ounces in the ground. One of the best short term strategies to create money is to sell-off projects, and that is why miners are selling assets at the bottom of the market, where in the past they would be buyers. The world is upside down.

Because an unprecedented amount of projects are for sale, a number of projects will not receive buyers. Even China has put a brake on its acquisition machine, as Chinese companies are barely making a profit. Furthermore, some projects that have recently been acquired are proving to be less profitable than expected, affecting their ability to make further acquisitions at this time.

And while in Canada one broker after another is going under because of the financial downturn, the financing hole is partially filled by a growing group of financiers relatively new to the show, namely the private equity companies. These have raised $9 billion over the last 16 months, which is 4x as much as the previous four years combined. This includes well-known names such as KKR. But new players have also joined the show, led by the former CEOs of Xstrata and Barrick Gold, for example. These men see a once-in-a-lifetime opportunity, and know very well what they are buying, as they have been intimately involved in the projects. This new group of private equity firms now have cash to buy projects at unprecedented low valuations. Once valuations rise back to their multi-year averages, their acquisitions will be worth multiples of the current share price. These firms will be the big winners of this phase of the commodity boom.

Costs for the mining industry in Australia have increased more sharply than elsewhere in recent years, mainly because of high wages. The next domino in line that could fall is the Hidden Valley mine, owned by Newcrest. However, gold mining is threatened in other countries as well. It is said that Semafo’s Samira Hill gold mine, in Niger, is also in danger.

The most recent economic study of the giant Tasiast project by Kinross, is also not looking too rosy. It is highly questionable whether Kinross, a company that has long been under pressure due to disappointing performance, is willing to chip in nearly $3 billion to build the mine. Many other mining companies have also indicated that they seek to lower costs across the board to remain profitable at the current price of gold. In particular, companies are cutting back on expansion plans and exploration. This will, over time, inevitably lead to a reduced supply of new gold.

In contrast, the demand for gold is unprecedented. Everyone wants to buy jewelry, coins and bars at these prices. There is a gold rush going on the likes of which hasn’t been seen in thirty years. It is therefore incomprehensible that, with so much demand for gold, the gold price  has tumbled to a three-year low, and this indicates it should rise.

Excuse me?

On the very same day as the announcement, newspapers were filled with reports of exploding gold demand and shortages. Gold sales in Shanghai reached new records. For the first time in eight years, Japan has now become a net buyer of gold, having routinely sold the metal in the past.

A number of major Indian gold dealers have been completely sold out. The dealers say they can give no indication as to when deliveries will resume, and insiders say this has never occurred before. The Swiss refiner MKS Capital is also sold out of physical bullion, and indicates a two-week delivery time. MSK mainly supplies to Asia.

Both in Austria and the U.S. Mint, gold sales have tripled in a month. The US Mint announced today that certain coins are no longer available, something which has not happened since 2009.

Insiders have not seen such a gold rush in fifty years. The demand for physical gold has never been greater in the previous 30 years. Local shortages have been reported in Thailand, Hong Kong, Singapore, Beijing, Nepal and Dubai. However, Goldman Sachs insists no one is interested in possessing gold. Do they read the same newspapers? Do the bullion banks live on another planet? Or could it be that these parties have an interest in a lower gold price, and are being used as a tool to achieve this?

The author says that the “obvious and concerted” attacks on gold and silver proceeded in earnest when the gold price charged through $1,900, in August 2011. Because of the accelerated depreciation of the dollar against gold (the ultimate and universal value of money) the Fed policy of continued printing of paper money to finance the debts of banks came in grave danger. After all, if the dollar’s value to gold collapsed, who would have confidence in the value of that same dollar against other currencies? A flight out of the dollar was feared, and the Fed was forced to intervene.

Roberts indicates that in August 2011, Washington sent out word that gold was a bubble. The loyal media eagerly jumped on this bandwagon. Subsequently, the Fed set its banks to work to persistently sell uncovered short positions on the paper gold market (Comex). The gold price then fell to around $1,750. This mechanism still enables control of the gold price to this day. Recently, the Fed released the rumor that hedge funds and other large investors (ie. George Soros) are planning to get rid of their gold positions. Banks quickly advised their customers to sell their positions in gold, in early April, in order to preempt this sell-off. And of course the price of gold fell to under $1,600. For the Russians, Chinese and Indians this is an excellent opportunity to buy the valued metal at discounted prices.

The Fed’s illegal policies buy time to keep the house of cards standing for a little while longer, but the obvious attacks should be a clear warning to everyone that there are major problems on the horizon, according to Roberts. Ultimately, the policy of the Fed cannot succeed, and as soon as the printing press stops working, the savings and pensions of Americans will be seized to buy a few more years. Ultimately the U.S. will become a third world country. Roberts predicts that this will be a matter of fact within ten years.

Although the price of platinum rose sharply at the beginning of this year due to labour unrest in South Africa and the subsequent drop in production, the governments of South Africa and Russia are particularly worried about the lagging automobile industry and the effects this has on the metals. Platinum is both a precious metal with a monetary value, as well as a metal with an industrial value because of its application as an automotive catalyst. The automotive industry, which is responsible for 38% of platinum demand and 71% of palladium demand, has been lagging since the 2008 crash, and as a consequence the industrial demand for both platinum and palladium is significantly reduced. Platinum is used in diesel engines (especially in Europe), and palladium in gasoline engines.

It is this development that is of concern to the governments of the two countries, and they have therefore agreed on a concept framework with which they seek to regulate the export of platinum and palladium. The aim is to support metal prices by better alignment of supply and demand. The supply of platinum in South Africa has been very erratic in the past, with periods of shortages, but also large surpluses. As South Africa produces 73% of the mined platinum production and Russia is responsible for 47% of the palladium, such a cartel is a major potential obstacle to the availability of the metals.

However, the market view of the two countries is in stark contrast with that of market analysts. These see a robustly growing demand for the metals from the BRICs countries, where smog is a major problem accentuated by the fact that there are too few cars driving around with catalysts. China in particular intends to address this problem, and platinum and palladium are the only metals that can efficiently convert the toxic carbon monoxide. But also in the west, car sales are expected to rebound, and emission standards are expected to tighten further. Also, platinum is becoming increasingly popular as an investment. According to these fundamentals, demand will increase, which would be detrimental to the need for a cartel. Since more than half of the platinum producers in South Africa are currently producing at a loss, this can only mean that future platinum and palladium prices will be structurally higher. All this will benefit exploration companies that are looking for PGMs in safe countries.