Animals, real or imaginary, must be fed on a regular basis. That feed, as we have also learned in recent years, can be either real feed or imaginary feed. Virtual animals that live on web-based children's games can survive on virtual feed. Real bulls can only survive on actual grass or hay. Financial bulls can survive on a variety of imaginary feeds, but only for a limited period of time. As real feed has not been available for financial bulls for such a long period of time, their survival may be in question.

Financial market bulls can survive for short periods of time on rumors of feed on the way. These rumors are usually conjured out of thin air by cable media gurus, Keynesian economists, Street strategists, and other cartoon characters. False rumors of food for the financial market bulls in recent years have been abundant. Included have been

Hyperinflation is imminent, a perennial favorite.

U.S. dollar is to become worthless.

Euro zone is to collapse, and Euro to become worthless. Alternates with previous rumor.

QE-3 will happen next week.

We note that none of these fantasy reasons for expecting a dramatic move in the prices of Gold and Silver came to pass. Unfortunately for the purveyors of investment fantasies, one of the real sources of food for precious metals has also not cooperated, as shown in the following chart.

Red line in above chart, using right axis, is the year-to-year rate of change in the U.S. money supply. As is readily apparent, at this time the growth rate of the supply of dollars is not sufficient to cause either hyperinflation or a collapsing dollar. The food supply for the Gold and Silver bull markets is simply not growing sufficiently to keep them healthy.

Above chart of our Gold/Silver Index portrays the consequences of an inadequate food supply. That index is no higher than it was in early 2011. Little wonder, physical demand for Gold and Silver has collapsed. For example, Indians, historically large buyers of PMs, have been priced out of the market by the collapse of the Rupee versus the U.S. dollar.

In chart above that the 220 level has become an important resistance level, having been touched several times, is fairly obvious. However, for the price of a physical commodity to advance real demand for the physical commodity must exist. Such is not the case at the present time. That resistance level has been created by speculative driven demand for paper Gold and Silver. Demand for imaginary commodities cannot sustain the price of a physical commodity indefinitely. Do not confuse trading of imaginary precious metals with the buying of real precious metals.

Demand for imaginary Gold and Silver in the form of derivatives may have prevented the markets for those metals from moving lower. However, that causes two problems. An important market low, one with significant negative psychology, has not developed. Second, an important economic low has not been created for either metal. The lack of either of those meaningful lows may have prevented some pain, but likely has also removed some of the potential for pleasure.

Important market lows create the psychological and economic energy for the reemergence of a rising trend in a market. For Gold and Silver the lack of those important lows may have two implications. A lateral move could develop, persisting for an extended period of time. That means a "V" bottom will probably not occur. Rather, a weak "w" bottom is a more reasonable expectation. Second, the potential for highs in late 2013/early 2014 time frame will likely be somewhat muted. A new high at that time for $Gold, because of its new and permanent role in portfolios, remains a reasonable expectation. For Silver, however, because of its role as a secondary, speculative metal is unlikely to achieve a new high in that time period as economic forces will likely cap it early.

And in the headlines: Front page headline for Financial Times on Monday, 6 August, may spell the end of one of the great fantasies, one that has existed for nearly 140 years. It reads: "USA set to drop 4-year probe into silver price" No manipulation is evident. Told you so! : )

GOLD THOUGHTS comes from Ned W. Schmidt,CFA as part of a mission to save investors from the regular financial crises created by Keynesianism, and the high priests of that misguided ideology. He is publisher of The Value View Gold Report, monthly, and Trading Thoughts. To receive these reports, go to: www.valueviewgoldreport.com