Theodore Butler | September 8, 2017 - 10:10am

Id like to share what may be a different way of looking at the gold and silver market, but still remain focused on what has been the primary driver of price changes in the COMEX futures market structure. It has become fairly common knowledge that prices rise when the managed money traders buy and prices fall when these traders sell. So great is the effect on price of this COMEX derivatives positioning that it is discussed in more commentaries than ever before. And that is due to what has become a clearly observable pattern of cause and price effect.

Let me first quantify the amount of gold in existence throughout the world in all forms as 5.6 billion ounces, an amount on which there is near universal agreement. Not all of this gold is thought to be available for sale at some price, such as religious and other artifacts and some jewelry, but much of it could find a way to the market depending on price. Quite arbitrarily, let me assert that 4 billion ounces of gold might find its way to market at some point, including all government holdings and the amount held by the earths 7.5 billion inhabitants. Dont get caught up with the precise amount, as it doesnt make much of a difference whether the number is 3 billion or 5 billion oz.

Just like in any investment asset, those entities and individuals which hold gold would prefer and would generally be benefited by a rise in the price. Conversely, all the holders of gold would generally be adversely affected by lower prices. This is very basic stuff and in no way is intended to trick anyone; Im just speaking in very simple terms. In addition to all the existing physical gold in the world, there is a large gold mining and production industry that extracts 100 million oz of new gold each year; which in turn, is owned by all types of investors, all of which would prefer to see rising gold prices for the obvious reasons.

In summary, the holders of 4 billion oz of gold, as well as those who own the mining companies that extract 100 million gold oz annually, all have a vested interest in higher gold prices and virtually all would be financially damaged by lower prices. This is exactly the same point that could be made in any investment asset, from stocks and bonds to real estate up in price is good for holders, down in price is not so good. Of course, its not simply a matter of good versus not so good, as investment assets and markets can get overpriced or underpriced, depending on collective investment behavior and other factors.