OK, so here is the storyhttp://www.zerohedge.com/news/2014-03-18/what-common-theme-iron-ore-soybeans-palm-oil-rubber-zinc-aluminum-gold-copper-and-ni as told by Zero Hedge a couple of months ago and now the story of missing metals todayhttp://www.zerohedge.com/news/2014-06-04/china-scrambling-after-discovering-thousands-tons-rehypothecated-copper-aluminum-mis?page=2 . Copper is reacting to this story by dropping in price rather than rising, this scenario was forecast by Goldman Sachs and agreed upon by Tyler Durden(s). Please understand that no matter what happens to the prices of copper, lead, beans, zinc or even gold, the bottom line is that this is a very fast growing seed that will grow into a credit contraction/implosion that will leap from China's shores and engulf the entire credit based world.

I must confess that I am a little bit confused with this but let's think this through and see what we come up with. At first glance, my thought was that if the metals are not there for whatever reason (never there, hypothecated many times over or even sold while other letters of credit exist with multiple owners), once this fact was understood the prices would rise. Common sense says that if there is less supply than previously thought then the clearing price should be higher. Goldman and Zero Hedge argue that once the scam is uncovered, a rush to sell the contracts will overwhelm the demand to secure the physical product. This very well may be true as owners of "receipts" will sell to receive whatever they can ...while they can. The selling should only be over the short term in my opinion and a rise later in price as tight physical supply adjusts the clearing price later. I think the best way to explain their theory is that commodities (paper contracts) face a gigantic margin call that only can be satisfied by selling to cover. In essence, the asset has already been borrowed against several times over and the money does not exist to actually purchase the metal because it's already been "bought" and the money spent elsewhere. Again, this is a little bit counterintuitive but I will come back to "counterintuitive" shortly.

Gold is where Goldman and Zero Hedge disagree. Goldman believes that gold will also go down just as other commodities while Durden disagrees. Zero Hedge believes that gold may actually rise and erase the losses of the last two years, in their words ..."And yet in the case of gold, it just may be that even if China were to dump its physical to some willing 3rd party buyer, its inevitable cover of futures "hedges", i.e. buying gold in the paper market, may not only offset the physical selling, but send the price of gold back to levels seen at the end of 2012 when gold CCFDs really took off in earnest.