Grasping the scarcity of Gold

Jim H
By Jim H on Tue, Jan 21, 2014 - 11:47pm

Gold is really not as enigmatic as one might think after reading endless stories about what's new in the paper markets, etc.  Gold is finite - quite scarce in fact, and we have a pretty good idea how much is out there.  A small increment of new supply comes on to the market each year, and we have a pretty good idea how much that is, and where it's going. 

Let's ask some questions, and see if we can get our hands around this scarcity in terms that make sense to us.  Let's start here;

Q.  If all the Gold currently not in central bank (sovereign) or ETF hands were to be distributed equally amongst everyone on earth... how much would each person have? 

A.  0.7 ounces is what I calculate.  Hhmmm.. not so much to go around if we think of it this way.  Not so much to go around, especially if there is a worldwide loss of confidence in fiat currencies. 

How's about this;

Q.  What is the current dollar value of all the Gold in the Sprott PHYS trust... the one with Gold bars outside the banking system, in Canada, that has a bar redemption feature, and how does this compare to the total of all US IRA assets that may one day chase it?

A.  PHYS holds 1.475 Million ounces of Gold, or about $1.83 Billion dollars worth.  US IRA's total ~ $ 5.7 Trillion dollars, or a little over 3000X the current value of the PHYS Gold... and that's one class of money that could chase PHYS shares some day.  

Q.  How much Gold, compared to the PHYS holdings, did Chinese demand equate to, in terms of SGE vault removals (deliveries) during the last recorded week?

A.  Almost twice the amount.  PHYS holds 45 tons, and Chinese demand was 79 tons in the second week of January  (

Q.  But that 79 tons must have cost a lot of money, right?  Where do those relatively poor Chinese get all that money?  

A.  The week 2 deliveries of Gold cost the equivalent of $ 3.21 Billion dollars.  The Chinese have more money than you think as they have been busy creating their own "wealth" in the form of credit bubbles too;

  But the biggest stunner is the sheer size of the wealth transfer: according to ICIJ estimate, up to $4 trillion in "untraced assets" may have left China since 2000.

Q.  So how much Chinese money/credit is out there that might want to exit, "paper" investments and compete with my dollars if there were to be a rush to Gold?

A.  A shit ton (that's a technical term);

Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion.  That is an increase of $14 trillion in just a little bit more than 5 years.  Much of that "hot money" has flowed into stocks, bonds and real estate in the United States.  So what do you think is going to happen when that bubble collapses?

Q.  So Jim, are you saying that, A. China has a voracious and ever growing appetite for physical Gold, and that, B. the amount of money and credit just in the hands of the Chinese today dwarfs the Gold market, priced in dollars, or considered in ounces?

A.  Yes. 

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