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Andrew Maguire, a former trader with Goldman Sachs[GS 130.16 0.27 (+0.21%) ] and a vocal spokesman about what he suspects is market manipulation in the gold and silver markets, has been saying for awhile that there's a huge unforeseen amount of demand coming in the physical gold and silver market.

Here's why: The Pan Asia Gold Exchange.

Maguire explains why he predicts that the new exchange will usher in a new demand for physical gold and silver in a new interview with King World News, which we've pulled key parts from and transcribed below.

"The Pan Asia Gold Exchange is going to send shockwaves through the mechanisms for the price discovery for both gold and silver. It's backed by China's state administration for foreign exchange and also the Chinese security regulatory commision. But the biggest bombshell is the offer of an RMB gold contracts for international investors.

"This is concrete evidence that China plans to bring the Remninbi to the world stage. It's going to provide access to a much more physical market and I know it's going to attract a lot of the world's precious metal business, providing much more of the Chinese and the international customers an alternative platform on which they can buy and sell buy and sell physical gold and silver.

"Now the first contract is actually going alive this month and its a 10-ounce gold mini-contract for the domestic Chinese retail market, which really until now has been restricted to physical purchases, so this domestic contract should be fully operational this month.

"It's going to have a major impact on the demand side of precious metals equation. Especially as there are 320 million customers of Ag bank of China, who going to be plugged into this exchange platform from the off... If just 1% of their customers bought a single 10-oz contract, that would require new physical demand of 1,000 tons.

"Now this is welcome competition. And it should improve price discovery and dilute the effect of short side concentration."

"The impact on silver is going to be much more pronounced. We know silver is a much small market and it's already in tight supply. This is the tinder box."

Bottom line: "The shorts are going to looking for a quick exit as they're factoring in this unforeseen demand in the physical market," says Maguire.

Listen to more of the interview here.

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