NEW YORK (PNN) - June 19, 2014 - Gold and Silver are surging today with the latter having its best day in months and back at 3-month highs. Intriguingly, gold and silver have been on a significant tear since the Qingdao CCFD probe began while copper and iron ore and so on have all fallen.

When we previously contemplated what the end of funding deals may mean for the price of other commodities, we agreed with Goldman that it would be certainly negative. Yet in the case of gold, it just may be that even if China were to dump its physical to some willing third 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 offin earnest.

In other words, from a purely mechanistical standpoint, the unwind of China's shadow banking system, while negative for all non-precious metals-based commodities, may be just the gift that all those patient gold and silver investors have been waiting for. This of course, excludes the impact of what the bursting of the Chinese credit bubble would do to faith in the globalized, debt-driven status quo. Add that into the picture and into the future demand for gold, and suddenly things get really exciting.

In the gold markets, the paper or synthetic demand/supply dominates pricingas opposed to the non-precious metals, which have at least a grain of fundamental sense to them still.

Throughout 2012/2013 - as the gold CFDs were booming, Chinese demand for physical gold was soaring as the price plunged(due to the forward hedging required in the CFD transactions which pressured gold swaps/futures lower and thus dominated pricing).

As CFD unwinds hit en masse, these flows must unwind(cover hedges and ensure the underlying physical is there... and if not buy it).

This will pressure gold futures prices higherand because unlike in non-precious commodities where spot markets wag the tail of the futures markets - spot gold will likely be dragged higher also.

So unlike in the industrial commodities - where the CCFD unwind drives prices down, thanks to synthetic manipulation and domination of the paper gold and silver markets, the opposite occurs in PMs.