Bill,
I have read some of the newswires reporting on the World Gold Council Q3 demand report but NONE of them come close to conveying the screaming bullishness of the WGC report itself. IT IS A MUST READ.

http://www.mediacentre.gold.org/medi...

Here are some key points from the report

• Dollar demand for gold reached an all time quarterly record of US$32bn in the third quarter of 2008
• This figure was 45% higher than the previous record in Q2 2008.Tonnage demand was also 18% higher than a year earlier.
• Identifiable investment demand, which incorporates demand for gold through exchange traded funds (ETFs) and bars and coins, was the biggest contributor to overall demand during the quarter, up to US$10.7bn (382 tonnes), double year earlier levels
• retail investment demand rose 121% to 232 tonnes in Q3
• Gold ETFs enjoyed a record quarterly inflow of 150 tonnes in Q3. Net inflows surged by an unprecedented 111 tonnes during 5 consecutive trading days, equivalent to US$7bn.
• Q3 saw a record US$18bn of consumer demand for gold jewellery with buyers returning to the market on lower price points, around and below US$800, demonstrating the underlying positive sentiment towards gold and its recognition as a store of value.
• Despite a deteriorating global and domestic economic climate, demand in India, the largest market for gold demand, recovered during the third quarter, encouraged by lower gold prices, a good monsoon and the onset of the festive season. At 250 tonnes, total consumer demand was 31% higher than Q3 2007 levels. In value terms, demand hit the record quarterly sum of US$5bn.
• Demand in Greater China rose 18% to 109 tonnes, with the majority of this increase attributable to a strong rise in demand in mainland China (+16 tonnes).
• Jewellery demand in the Middle East, which accounts for more than 90% of total consumer offtake in the region, rebounded in Q3 with tonnage demand up 15% on Q3 2007 and up 47% in dollar terms, hitting a new record of US$2.8bn. Retail investment demand, while relatively small in size at 7 tonnes, recorded strong growth of 23%, and 57% in dollar terms. In Turkey total Q3 offtake, at 99 tonnes, was up 15% on the levels of a year earlier, with investment demand smashing all previous records to reach 31.7 tonnes.
• Gold supply was down 9.7% on year-earlier levels, largely driven by a significant reduction in central bank sales. Sales under the Central Bank Gold Agreement (CBGA) totalled a provisional 357 tonnes in the CBGA year ending September 26, the lowest annual figure since the first Agreement was signed in 1999.

The word "Record" was used 11 times in a one page press release! 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.

END

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 Mints 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.
Cheers
Adrian