"But the most interesting of all is this quote: ‘As the financial crisis deepened these increases in identifiable investment demand were offset by outflows in "inferred investment". This was characterized by hedge funds liquidating investment positions in gold as they were forced to raise cash and by institutions liquidating commodity index investments, including gold, as fears of recession deepened. The trend largely reflects gold's better performance relative to other assets and also explains why the gold price did not perform better during the quarter in the face of very strong demand.’

"Notice the categorization of ‘inferred investment’. The physical gold market was ON FIRE breaking all records while the paper market of futures contracts (inferred investments) was being sold off. As we know this was instigated by 1 or 2 US banks selling short 10% of annual gold production and 25% of annual silver production in 4 short weeks during July.

"When you see the massive record breaking physical demand, one has to wonder where the banks might source such supply if they had to deliver on the contracts and WHY would anyone sell such a massive amount of ‘inferred investment’ with the physical market on fire. This is absolute vindication of GATA’s work. The only viable reason was this was intended to cool off the physical market. It obviously failed. On the contrary it probably stimulated the physical market as real money was being sold at a discount.

"The most important point about this report is that the huge record breaking physical demand has to be met with real record breaking supply…but mine supply has declined 9.7% and Central Bank sales that have been reported, are declining. This would imply that gold sales, or loans that are not being reported, are having to fill the growing gap between demand and supply. Such a supply squeeze is totally consistent with the (US) Mint's limiting supply, coin melt bars from Fort Knox showing up on the market, and gold supply being rationed to India with pathetic excuses of credit risk exposure and the unprecedented massive covering of the traditional shorts on the TOCOM who are going neutral to net long!

"The sell off on COMEX is liquidation of demand for gold that doesn't exist. This has helped the Cartel, but it has NOT SOLVED THEIR PROBLEM OF LACK OF SUPPLY. There are still 250,000 gold futures contracts outstanding that are above and beyond the ability of the COMEX to deliver. A percentage of these contracts will stand for delivery. Perhaps it will be a large percentage, who knows? But we will soon find out. A percentage of this ‘inferred investment’ can shortly become REAL DEMAND for PHYSICAL METAL. You can see from this report that the record demand has strained the system to the limit and created unprecedented shortages. The system can not deliver on even 10% of the Open Interest currently outstanding on COMEX. The stage is set for a coming massive short squeeze."

The one page press release from the World Gold Council is linked here.
That's more than enough for today...and I'll see you on Friday.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.