Wednesday, January 16, 2013

Global Gold Demand: Fact vs. Fiction

Will gold and silver follow the same pattern twice-repeated over the past decade so that we can expect outsized price gains in the precious metals the next two years?  Yes, I think so because gold and silver remain undervalued, and the world's monetary and financial problems have not been solved.  The correction is now over, the new floor is in place, and investors should expect to see spectacular moves for gold and silver over the next two years.  - James Turk, King World News (KWN)
Recently there has been a lot of "noise" about the level of global gold demand.  A lot of the so-called "data" comes from the World Gold Council, which because of its name is considered an authority on annual supply/demand data.  But in studying this sector as closely as I have for the past 12 years, I can't find anyone considered knowledgeable who thinks the WGC's data is reliable.  For instance, in general the WGC is nothing more than an de facto industry association for the global jewelry business, and most of its data reflects demand data from that segment of the market.   They completely ignore the voracious ongoing accumulation by many big Central Banks.  The truth is, no one really knows for sure just how much gold is being "consumed" globally both overtly and covertly.

I wrote a piece addressing this issue, mostly in response to a piece posted on Seekingalpha last week making the claim that lowered gold demand would lead to lower gold prices.  The article relied heavily on source links that referenced the World Gold Council numbers:
As you can see, the truth stands much larger than myth. The demand of gold/silver is not only unequivocally not in decline, it is in fact globally getting even stronger. This will underscore what I expect to be a significant price rise in gold and silver during 2013.
Here's the link:   Lack Of Demand....?

The one thing I can say for sure:   the fact that gold has gone up every year for the past 12 years, despite the heavy headwinds of western Central Bank/Government price suppression schemes, is evidence alone that the demand for physical gold is far greater than the supply.  Moreover, the supply of printed fiat currencies of all nationalities is accelerating.  It is this increasing supply that will push the relatively fixed supply of physical gold and silver a lot higher over the next several years.


  1. Dave - do you know of any place in the Denver metro area or CO where you can pick up a monster box of Silver Eagles? Would rather walk in than order by mail... TIA

    1. Check craigslist. There's a dude selling monster boxes, at least the last time checked, there. Much better spread than from a coin dealer. I've never had a problem buying/selling on craigslist and I've met some very interesting people in the process.

    2. Oh wow. Interesting. I hadn't checked in a couple weeks. In fact, there's not a lot of silver period offered right now compared to up to a couple weeks ago.

      That's interesting because the Denver craigslist is a good bellweather for supply/demand of physical.

      I did find this:

  2. Germany’s Entire Gold Hoard At The Fed May Already Be Gone

    The latest round of gold repatriation was started by Hugo Chavez, and in Chavez’ case nobody knows if he is alive or dead right now. So we have seen a pattern from Saddam Hussein, to Gaddafi, and now Chavez, that anyone who interferes in the gold market or attempts to threaten the US dollar’s dominance ends up dead.

    Ecuador decided to take a page out of Chavez’s book and ask for Ecuador’s gold back. So their gold was repatriated. The Germans and the Austrians were the latest to have public discussions asking the question, ‘Where is our gold?’

    Now the Germans have decided to take back their gold out of France, and apparently small portions of their gold will be sent from the Fed to Germany in coming. I do believe a lot of Germany’s gold has been leased out internationally, through the bullion banks. So the reality is that the German gold hoard, which is supposed to be stored at the Fed, may already be gone.

    There was the situation a quite a few years ago when Drexel Burnham Lambert went down. They had borrowed 17 tons of gold from the Bank of Portugal, and when Drexel failed, the Bank of Portugal never got it back. Its claim evaporated when Drexel evaporated.

    If you look at what happened to Portugal, the question becomes, should key bullion banks fail, would Germany and other nations forfeit their gold because the existing leases and claims would simply evaporate, as was the case with Portugal? This is something to consider. Countries such as Austria and others were getting paid to participate in gold leasing. I’m sure in the fine print it states if the bullion bank conducting the lease fails, the gold is lost, again, as was the case with Portugal and their 17 tons of lost gold.

    I believe that most of the Western world’s gold, which is supposed to be in central bank vaults, has been leased out. Much of it is now in private hands in India, and what remains continues going East to China and other Asian vaults. So most of the Western gold has vanished from the vaults and it’s now just a book entry.

    1. No problem, they have until 2020 to either casually mine the stuff or steal it from some oil producing nation afflicted with a "terrorist insurgency" that just need a little prescription of MIC "freedom and democracy". Mali? Nigeria eventually? I think Africa is going to become a very chaotic place in short order.

  3. Germany Reacts To The Retiring Treasury Secretary’s Parting Shot

    On the level of central banking there are no secrets. The long term plan for the currency war between the euro and the dollar is a derivation of the Free Gold Thesis. That means a significant change in the percentage of fiat currency versus gold at market value held by Euroland as reserves. This thesis has a target for cooperating Asian central banks for gold holdings at no less than 15% at market value. I question some of the thesis of Free Gold thinkers, but much of it has been in my writing for more than a decade on what the end game recovery will look like.

    I am told that the parting shot to break gold’s back by the Exchange Stabilization Fund was considered a direct attack on the Euro strategy for what the end game recovery will look like. The Free Gold thesis requires significantly higher gold prices to work and to elevate the euro back in reserve by choice category.

    The German reaction was not political but rather a direct warning that they could demand return of their gold just like DeGaulle of France did in the 60s by making a direct and immediate demand for conversion of the US dollar holdings into Gold.

    demand as in demand return?

  4. I thought that I would hear about Germany wanting their gold back from Paris & NY. I hope that it is there.

  5. Send then Bratwurst for being silly enough to believe their Gold was safer in the West away from Russia… Our Bolsheviks are just as nasty.

  6. Dave,

    I was astonished at that Manning pass in the late going, Saturday. I read it was the most-watched Saturday NFL game in 26 years. But the Broncos should rule the roost in that division for the forseeable future.

    I hope you will write a column on the state of the state in the mining sector sometime soon. At what rate of ascension do you see the $HUI in the intermediate term?

    1. Bronco game was a disaster from that the first absurd pass interference call on. Although the game itself was a nailbiter, the officiating - both ways - was the worst playoff officiating I've seen in 40 years of watching NFL playoff football. How the hell can there ever be a hold by an o-lineman on a one-yard line-push play up the middle. Denver got a 1st down and was flagged for holding. It's impossible. The play happens too quickly.

      Denver had every chance in the world to win that game and they failed. Denver lost the game, Ravens didn't win it. The coaches did not properly prepare the team to play. Hopefully it will be a good learning experience for a mostly very young team and they'll come back really hungry, and wiser, next season.

      Miners? Just requires patience. The miners have been excessively oversold and have become serious value plays. The hedge funds have been liquidating due to redemptions and have pushed them lower by shorting into the downward momentum. When it reverses, it will rip in reverse, just like after October 2008.

  7. All Aboard The Gold Repatriation Train: First Germany, Next: The Netherlands?

    As we noted here, the first party to defect from the prisoner's dilemma of all the bulk of global gold being held by the Fed, defects best (then the second, or even the third perhaps) and sure enough, via RTL, we see the Dutch CDA party has requested that Holland's gold supply be repatriated. Who next?

    The Dutch government says it has 612 tonnes of gold - with a value of around E24 billion - and is thereby in the top 10 of countries with gold reserves. The bulk of the Dutch gold reserves is in America and, to a lesser extent, in Canada and the United Kingdom. The rest, about 10 percent, is in Amsterdam.

  8. I think far too many journos forget to consider the rising cost of mining gold along with inflationary pressure on energy and labour. When one also factors in reduction of ore grades in new discoveries, POG looks like inexorable rise to me, especially as fiat dies via rampant abuse. However politicos will not give up gravy train easily. That is where we need to innovate.

    Dave this where you come in with creativity as physical metal just does not fit into a digital world....


    1. Cost of mining is rising, but producing mining companies that are well-run have been reporting higher profits margins every quarter for quite some time.

  9. Ok, time for me to break up the party...

    I agree with what all of you are doing but I also believe we are entering into a situation unparallel in history (there may be similar situations in history but not at this kind of magnitude). We just don't know when or what will happen. Don't be looking only at the "trees" of gold & silver and ignore the whole "forest". Remember that FDR took away everyone's Gold.
    It's one thing for Governments and Banks to horde precious metals and another thing for individuals. Since I'm an unemployed wage-slave, I stock on food (better than nothing).

    1. FDR didn't take away anyone's gold. That's an example of the tragic disinformation that goes viral through the internet/blogosphere. If you research the facts, maybe a few morons voluntarily redeemed their bullion at $20/oz, but the only gold the Government "confiscated" was gold that had been left in abandoned bank safety deposit boxes. He made it illegal to posses, but that doesn't mean people didn't hold on to what they already had.

      That situation won't happen again. Back then gold was used as currency, i.e. we had a gold standard. The Government would legitimize gold as such by confiscating it. The Government tries to ignore it as much as possible.

      Everyone out there should be more worried about the possibility of the global "reset" involving global military conflict, totalitarianism, etc. I'd be worried about "The Road" scenario descending on the globe, quite frankly.

      People don't think that can possibly happen, but then again everyone whom I told back in 2002 that their homes go down at least 30% in value didn't that could possibly happen either...

    2. One more point, back then the wealthy people who had hoards of $20 face value U.S. gold coins took their stash to Europe and safekept it there. How do I know? Because I know nuimismatic coin dealer in NY who has made trips over to Europe to hunt down these stashes, buy them, and bring them back here to resell.

    3. whenever the Government imposes a burden that is just too unreasonable, people will find ways around it or a black market will develop.

  10. A bit of information to add, Dave.
    From "Coin Clinic 1001 Frequently Asked Questions" by Alan Herbert. Page 112
    Q. How effective was the withdrawal of gold from the public in 1933?
    A. Like many government programs. It was something of a flop. Approximately $40 million in bullion, gold coins and gold certificates were returned to the treasury. Later the treasury estimated that the public still held some $311 million in only about 7% was actually turned in.

    A law passed is not obeyed, I had read somewhere that the US has ten thousand laws on the books to basically enforce the ten commandments, and they still do a pathetic piss poor job of it.

  11. Tim Geithner, the King of Cloud Cuckoo Land
    On January 25, Timothy Geithner will step down as US Treasury Secretary. A lot of people will say and write a lot of things about him at that point, and it sounds like a good idea to be ahead of the game and provide some perspective.

    There are voices claiming (there will be many more, promise) that Geithner pulled us out of the recession and the crisis, and saved the economy. That seems presumptuous. It may just as well be true that Geithner has fooled us into thinking that. Just because the stock markets are pulling through so far doesn't mean, let alone prove, that the economy has recovered or been saved. You would need something better, more substantial than that. While acknowledging that relatively strong stock market numbers are at least in potential a great way indeed to fool people about the economy.

    And going forward we can wax nostalgically about everything Tim has done, and about where the economy is now compared to 4 years ago, but when all else is said and done, there is still just one question that counts: what happened to the debt? What has Geithner done when it comes to debt? As long as you don't know what happened to the debt, you won't know the true state of the economy.

    Well, Americans still have higher personal debt levels than they ever had before (in fact, the best anti-gun law would be to ban paying for them with credit) and government debt has grown exponentially. Those things at least we know to an extent; when it comes to bank debt, we don't know much of anything. Tim has made sure of that. He's handed trillions of dollars in our money to Wall Street and we haven't received anything in return. Well, yes, we have the semblance of a somewhat stable stock market, but is that worth all that extra debt? Moreover, we still don't know what happened to the debt that caused the crisis in the first place, because Tim made sure it has been kept hidden from view. And how's that a good thing again?

    That says much more about Obama than it does about Geithner. The reality is that Obama will go down as one of the worst American presidents in history. Because four more years of the above will sink the US economy to levels not even imagined today, and Obama will be seen as an accomplice if not the main perpetrator of a whole series of - financial - crimes against the people. The president that brought the country to its knees.

    That is inevitable precisely because Geithner and Obama have done nothing at all for four years to restructure bank debt. All they've done in that time is keep the existing financial system, which was then and is now as bankrupt as any industry has ever been, standing upright. Or more correctly: appear to be standing upright. What the president and his Treasurer have done is feed zombies. With - future - human flesh. WIth the future prospects of our children. Obama has said that what Wall Street did was unethical but not illegal, but that is up to the courts to decide, not the president, and not Congress.

  12. Don't worry about global contagion it can't happen, just look at the VIX never been lower.

    Stocks: One number that doesn't add up

    The VIX (VOLATILITYINDICES: ^VIX ) closed at 13.42 today, marginally above its 13.36 closing value last Friday, which was a five-and-a-half-year low. (The VIX is derived from S&P 500 option prices and measures investors' expectations for stock market volatility over the next 30 days.)

    Historical. Implied. Cross-asset. Wherever you look, volatility is nowhere to be found!

    See the VIX is on a downward spiral and will soon be breaking 10 and then down to 8 and maybe 5-6. Just watch, can't have a collapse when volatility is zero.

  13. Dave - I've seen The Road, listened to the MP3s. I'm a fan.

    However, I think the scenario you and I and the rest on your blog, should likely fear most is one in which the $USD loses value fast, and the welfare masses who are currently "earning" $20-$30K/yr to sit on their couch suddenly lose their earning power.

    This will NOT happen in a depopulated, post nuke world. I won't argue against dystopian. And the nukes might start flying, for whatever reason, shortly thereafter.

    I'm not sure exactly what this portends for those who've got gold in whatever/whever situation. But I just think it is good to define terms.

    Thanks for you work.

  14. What do you think about silver? More opportunity or just unnecessary risk?

  15. Devil's Deadly Derivatives

    In the second half of the show, Max Keiser talks to Nick Dunbar, author of The Devil's Derivatives and Inventing Money and journalist at Bloomberg, about the Escher painting that is the global derivatives market where bankers are trading an option on an option that is a bet upon a bet upon a bet on a bet on a bet upon which there may be no collateral.

  16. Masses Close To Realizing Their Money Is Being Destroyed

    The problem with our current monetary system is not a lack of an understandable standard. “Full faith and credit” has been good enough for most people. The issue is that the transmission mechanisms of standards, also called markets, have been terminally marginalized. Price discovery in markets based upon fiat currency is almost non-existent. There are no believable financial “rulers” in existence to measure the level of money and derivatives to the standard upon which our money is currently based.

    In the U.S., our leaders are even championing the elimination of the debt (spending) ceiling. In such a world, among the remaining objective rulers will be the prices of commodities, gold and silver. That is why smart investors are already making the conversion from paper to real assets.

    Prominent names and organizations continue to berate and ridicule those who propose a return to some form of standard. Compared to the various incantations of the standard for the meter, a gold standard seems almost simplistic.

    We will give partial credit to those who say that expending resources digging the gold out of the ground to then rebury it in some other underground venue might seem strange to a Martian. It is a very inefficient approach if it were a perfect world. However, it has been a reflection of the inability of mankind to control the urge to profit from and debase the property and labor of others.

  17. Thank You for this information. I will need to do more research. I agree with with the global "reset" because unemployment is rising globally along with food prices. For a Nation to resist anarchy and revolution, it has to direct its population's anger to a pre-suppose "enemy" (the blame-game). This justifies war as well as making profits from war. Global Wars will be very nasty, however. It won't be like the small bush-fires we're having now and we see how destructive those are.

    Good call on the housing market!

  18. A new Gold Standard is being born

    Neither the euro nor the dollar can inspire full confidence, although for different reasons. EMU is a dysfunctional construct, covering two incompatible economies, prone to lurching from crisis to crisis, without a unified treasury to back it up. The dollar stands on a pyramid of debt. We all know that this debt will be inflated away over time – for better or worse. The only real disagreement is over the speed.

    The central bank buyers are of course the rising powers of Asia and the commodity bloc, now holders of two thirds of the world’s $11 trillion foreign reserves, and all its incremental reserves.

    It is no secret that China is buying the dips, seeking to raise the gold share of its reserves well above 2pc. Russia has openly targeted a 10pc share. Variants of this are occurring from the Pacific region to the Gulf and Latin America. And now the Bundesbank has chosen to pull part of its gold from New York and Paris.

  19. Germany’s Gold Is Being Held Hostage

    Here is what Turk had to say in this extraordinary interview: “It’s quite clear that the German gold is being held hostage. They are not getting what they want. They are getting what the Federal Reserve is telling them they can have. The fact that they are doing it over 7 years rather than 7 weeks, is just an indication that gold probably isn’t in the Federal Reserve, and the Federal Reserve doesn’t want to have to go out and buy it overnight to fulfill the German demand. They are trying to stretch it out as long as possible in order to keep gold prices controlled.”