Physical Supply On Offer

With a physical commodity like gold, as several others have pointed out, ‘supply' is not how much there may be, since most of the gold that has ever mined is closely held in treasuries and private vaults, and is not on offer, available for purchase. 

That amount would also likely fit in a modern four bedroom house. In other words, there is not a lot of it, and the supply is increasing at a fairly slow rate over time.

So ‘physical supply' is that which is thought to be for sale at the current prices.

At the Comex, this bullion is designated as ‘registered' or deliverable to someone who chooses to exercise a contract for it at the current price.

Demand

And also at the Comex, ‘demand' is synonymous with open interest, that is, a contract that is created when someone goes long or buys a contract that had not previously been owned by another. 

Yes there are significantly larger physical markets for gold bullion, almost all of which exist outside the US. But let us put those aside for now.

Rising open interest with rising prices and a steady or rising supply is easy enough to understand. More people are seeking to go long or buy a claim on some gold bullion, and the price rises to entice more who have their gold in storage to meet that demand.

What is also easy to understand, if you have a mind to open your eyes, is when demand is steady and historically high, but the price and the physical supply for delivery is falling. The explanation is naked shorting, the creation and selling of contracts based on increasing leverage.

That is, speculators, of whatever size and for whatever reasons, are nakedly meeting demand with an artificial supply that ordinarily could not possibly be met in an efficient physical market.

This is why I have come to think that the Comex precious metals market is like a The Bucket Shop, although technically it does not meet the statutory definition since ‘a transaction on a exchange' has been made.