Mining the GLD

Jim H
By Jim H on Fri, Mar 27, 2015 - 10:13pm

GLD lost almost 6 tonnes of Gold on Thursday, leaving it with a new total of 737 tonnes.  Assuming it's all real.. that is a lot of Gold.  But how much Gold is it really?  How might we put this in perspective?

Well, it's a lot more Gold than Comex has available for delivery (20.5 tonnes) and more than the total of all Gold being stored in Comex vaults (248 tonnes).  Certainly these two hoards comprise the largest potentially investable piles of Gold available for Western buyers, were they (we) ever to get a collective taste for Gold again.  So lets call it 1000 tonnes.      

1000 tonnes sounds like a lot of Gold.  How long would it take China + India to buy that much Gold at the current rate they are consuming it?  Good question!  Well, up to March 20, their combined total consumption has been 642 tonnes!

Year to date total withdrawals have reached a staggering 561 tonnes, up 7.3 % from 2014, up 33 % from 2013. When using the basic equation for the Chinese gold market to estimate import, we learn that up until March 20 China has net imported 412 tonnes. Add to this India has net imported about 230 tonnes over the same period, that’s 642 tonnes combined. I wonder how long the Chinese can keep up this pace of importing before physical supply from Western vaults runs dry.

https://www.bullionstar.com/blogs/koos-jansen/when-will-china-disclose-i...

So clearly, in less than half a year, China and India would consume this much Gold.....  the entire Western "retail" hoard. 

How many ounces is 1000 tonnes?  (1000/31) x 1,000,000 is the answer, or  32.3 million ounces.  That sounds like a lot, right?  What if every family in the US realized that paper money was losing value and they wanted to buy some Gold.. how much would be available from this stash for each family?  The census says that by last count there were about 115 million households.... so that's simple math;

32.2 million ounces/115 million households = 0.28 ounces... or a quarter ounce of this wealth preserver extraordinaire available per Family!  Realize that this is just a thought experiment, and at least one person or entity already has a claim on each of those ounces.  They may not be willing to sell in the end.      

Does anyone start to see a problem here?  Might there be an availability problem ahead?  Might the current price be somehow out of sync with the actual supply vs. demand situation when viewed on a worldwide basis?  Might you be frozen out of availability in a flash if something major breaks.  Yes, Yes, Yes, and Yes.  

Regardless of the painted price story that that chart of the last three years tells, Gold is in high demand outside of the US, and there simply is not enough of it to go around.  It is much more rarified stuff than the market riggers would have you believe.  The numbers tell the story.   

For me, I prefer my Gold outside the US, and outside of the banking system.  I do this by holding Sprott PHYS shares.  How much Gold is in PHYS?  A mere 1.26 million ounces.  That is not going to spread too far based on some of the numbers we have played with above. 

Just remember this;  The current  demand from China and India is about enough to suck up the entire worlds mine supply.  Overall demand, presently, is much higher than mine supply, which is why the GLD is being ... well.. mined.  What do you think will happen to the supply vs demand balance once things actually start breaking? 

  

 

 

          

21 Comments

Jbarney's picture
Jbarney
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Awesome Post Jim

Sometimes I almost feel as though Adam and Chris should invite you on for a podcast....not to go too crazy in depth into the Gold and SIlver markets, but just to talk about all things "real".  You certainly have the respect of PP's Davefairtex, as he has mentioned your ability to argue from a data driven stand point a couple of times.  Jim, when you put together a post like this you clearly have an understanding of the market and Chris and Adam should seriously consider lining you up for an interview.  "What the Common Man Can Do" or something like that.  The information you provide is just as enjoyable as David Morgan, Eric Sprott, or Mike Maloney, at least from my perspective.  I think the story of the average guy taking the red pill and starting to accumulate things physical has a lot of value.

I have my own experience, and I am saving a lot less than others, but I buy when I can.  As Chris described in a couple of his writings....I do remember the first time I went out and purchased physical silver with the mindset of not really having long term faith in paper.  It was a cold freaking day, standing outside the coin shop.  Wind gusts were like ice against the skin.  Cloudy. Wet.  Only bought a silver dime.  But I did it again and again, and now I love the feeling I get when I go to the different dealers I've been able to identify in my area.  Feels like I am saving.  Like I have worked in the garden all summer and what comes out is mine.

Specific to your post, I love the math you throw out there, as I think it illustrates the point very well.  If you throw a looming crisis in there, I sincerely doubt that those who have gold are going to want to sell at prices anywhere near where they are right now.  Which illustrates your point.   It is almost disturbing to think that China and India are accumulating so much and we are so distracted by paper.  Very sad.  18 Trillion in debt, much more if you count liabilities.  This is going to be messy.

One final point, and it has to do with the poor man's gold....silver.  I would love to see your thoughts on where silver fits into this equation....what the Chinese/Indian importation numbers are for the shiny metal. I have not been able to accumulate any gold, but understand the relationship between gold and silver, and I expect silver's rise to track gold's pretty nicely as all this plays out.  I've heard different snippets about silver being imported by foreigners as well, and wonder what they dynamics/numbers are relative to gold. 

So to sum things up....Adam/Chris...get Jim on a pod cast.

I just put buying another ounce of silver on my to do list for the day.

Peace folks,

JB

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davefairtex
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Jim comes with data

JBarney-

Its true, I have a tough time engaging with many goldbugs, who simply repeat someone else's opinion they read somewhere about gold suppression and if not for the grand conspiracy, why then gold would be $50,000 dollars an ounce.

Jim almost always comes armed with data, and from data you can actually have a meaningful discussion.  Often Jim makes me think, and sometimes I think so much I go and include something we talked about in my weekly report.  Jim calls it my pulpit.  Imagine that!  And I'm not even the guy with the "Gold Time Religion" here.  :-)

750 tons does sound like a lot - but as Mish pointed out the other day, there's a lot of gold out there.  Very little mined gold actually gets "consumed" by the world.  According to his numbers, GLD holds about 0.5% (thats zero point five percent) of all the gold ever mined.  FWIW, it sounds from the tone of the "peak gold" article referenced by Mish that Goldman Sachs is now long gold and wants you to buy.  No doubt once they go short, they'll be releasing articles about a "gold glut."  Perhaps that's the most important takeaway from this article: they will be encouraging prices higher (via articles such as this) in order to pump their next quarterly bonus.

http://globaleconomicanalysis.blogspot.com/2015/03/misunderstanding-peak-gold-gold-about.html

I do think Jim is right.  If/when western retail gold demand returns, gold price will respond.  The western buyers alone got gold to 1920.  Chinese GDP has almost doubled since then.  Once both groups of retail investors want gold at the same time, price will rocket higher.

In the meantime, GLD has definitely lost a whole bunch of gold, and its gains and losses are roughly correlated with the price movement.  That is, when price rises, tons in GLD rise too.  I used to think it was being raided to pay off the Chinese, but after watching the tonnage move for a while, these days I just use it as a rough proxy for "western gold retail investment demand."

COMEX is a different story.  Futures are tougher; you have to roll them if you want continued exposure, you are forced to deal with the daily banker shenanigans - they are always after your stops - and it just doesn't feel so much like gold.  Good leverage though.  I use COMEX as a proxy for western hedge funds wanting leveraged gold price exposure.

Here's the chart: COMEX gold vs GLD holdings in tons.  Correlation is easy to spot:

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KennethPollinger
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Thanks Jim

I second the motion by JB.  However, you say that you buy  Sprott PHYS shares.  According to YOUR math, I doubt you would get back much, no??  Am I missing something?  Ken

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Jbarney
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Dave and Jim

Actually....Dave and Jim have squared off enough on the Precious Metals reports that it might be nice to hear both of them.  Not a point counter point discussion on manipulation, as I know that  causes fireworks between the two of you, but it would be great to hear you guys and Chris together, just covering "all that glitters".

To Jim's point earlier, it would be nice to analyze the global gold market.  I suppose it is impossible to know what happens with respect to private sales...I mean that must account for some portion of what moves, but I also imagine most of the folks who own gold deal in ounces...and governments/central banks deal in tonnes.

Keep up the good work fellas.

 

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Jim H
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Thanks for the excellent dialogue JB, Dave, and Kenneth.

That's what I really hope for here at PP.com... a vibrant conversation about the nature of money.  One of the themes that I have stressed in my past writings - the thing that really anchors my view of Gold (and Silver) is this;  You cannot understand or really appreciate Gold by just studying Gold.  You must, must, must first understand what debt-backed fiat currency is, how it tends to act (exponential growth), who throttles it's growth (or lack thereof), and of course how it is created (out of thin air) in the first place.  Most of your friends and neighbors probably believe that commercial banks function like (only) credit unions actually do, i.e. lending you money other people have put on deposit.  Well, they don't... banks create the money they lend out of thin air.  To fully go down the rabbit hole, I recommend this wonderful book, on top of all the excellent resources in the crash course;

       http://www.amazon.com/Monetary-Elite-Golds-Honest-Discipline/dp/09768427...

Let me give a very clear example about how, if you just look at Gold, without considering it's place in a world of paper monies, you will miss the point.  Warren Buffet famously said,

  Just take a look at part of a speech Buffett gave at Harvard in 1998 when he said of gold:

(It) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

Buffett just doesn't get what all the fuss is about when it comes to gold. The way he sees it, the value of gold is nothing more than our stubborn willingness to protect its value.

However, that's not the worst part of gold in Buffett's view. His biggest issue is the fact that gold is just so worthless. Not in the value someone is willing to pay for an ounce of it, but in its ability to create wealth. In Buffett's opinion, gold is lazy and has no place in an investor's portfolio.

http://www.fool.com/investing/general/2014/09/13/why-warren-buffett-hate...

What is missing from Buffet's commentary here?  Nothing he says is untrue... it is in fact almost absurd what we do;  Expending all this energy and effort (and even environmental damage) digging these Gold-rich ores out of the earth, concentrating and purifying them, then locking them back up and calling it wealth stored.  What's up with this? 

What's up with this is that history has proven, over and over again, that if you put too much trust in the money printed by various groups of elites... you are going to end up getting fleeced.. you are going to end up transferring wealth back to them.  As absurd as our use of Gold is (and again, it really is) it is ABSOLUTELY necessary ... as a counterbalance to unbacked, debt-based fiat currency.  It's the paper/digital money that makes Gold necessary.  There has to be a reference that cannot be printed;  Thousands of years of experience has made Gold it.   

The point of my piece above is that chewing on the numbers helps drive home an appreciation of how rare Gold is.  Like Dave says, there is a lot of Gold in the world stored somewhere - most estimates suggest around 170,000 tonnes.  You can run the same kind of thought experiment with this number, and I have.  If you take all the Gold in the world, and spread it out over all the people in the world, you will get this;  0.7 ounces per person.  

JBarney;  Thank you for the positive comments!  I have to say, my own self-assessment is that I am better with the pen (or keyboard) at expressing myself than I am off the cuff.  I don't see a podcast in my future : )  You also mentioned Silver - maybe the best way to answer your question is for me to tell you what my own personal Silver:Gold ratio is;  40.  Yes, that means I own 40 ounces of Silver for every ounce of Gold.  Given that the ratio coming out of the earth today is about 10 ounces Silver to each one ounce Gold.. The truth is I have tilted my balance toward Silver.  Gold remains more purely a monetary asset, which is why, as Dave says, almost all the Gold ever mined remains in storage somewhere.  Your practice of continually buying small amounts of physical is exactly what I do these days... can't wait until the next coin show at our County center. 

Dave said,

I do think Jim is right.  If/when western retail gold demand returns, gold price will respond.  The western buyers alone got gold to 1920.  Chinese GDP has almost doubled since then.  Once both groups of retail investors want gold at the same time, price will rocket higher.

I think you have cause vs. effect backward here.  My personal view is that Western (physical) demand is not going to lead.. it's going to follow.  Western demand won't awaken until price explodes, and by then (already actually) there won't be much Gold left for Westerners to invest in.  The Gold that has flowed out to points East is not going to come back.  Not at $1300, or $1400, or $1500.  It will not flow back until there is a reset of the price to truly reflect supply vs. demand.  The purpose of my writing here is to help folks awaken to the fact that our situation today, with Gold available, and reasonably cheap, will not, cannot, continue.  The situation we find ourselves in today is the result of official manipulation.. and this is where Dave and I disagree (understatement).  I align myself with folks like Dave Kranzler on this point;

Over the years Paul Volker has made it no secret that the Federal Reserve has assumed a policy in which it seeks to control the price of gold.  From his memoirs, excerpted by “The Nikkei Weekly” in reference to the dollar revaluation of the dollar by the U.S. Treasury on February 12, 1973 (Volker was the Treasury’s undersecretary for international monetary affairs at the time)  November 2004:

That day the United States announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.   - source link

Gold is the mortal of fiat currency and therefore is the mortal enemy of modern Central Bankers.  Fiat currency is the mechanism by which those who are in control of the system suck wealth away from everyone else. But at some point the natural laws of economics are going to reassert themselves and that’s when the Central Bankers will lose control of their ability to control the price of gold. The disconnect between real wealth and the amount of fraudulent paper wealth issued by the Fed has never been greater than it is now   

http://investmentresearchdynamics.com/paul-volker-gold-was-the-enemy/   

Kenneth,  You asked about PHYS.  I use PHYS because I believe it to be the best vehicle one can use in order to own the rights to physical Gold in an IRA brokerage account.  Would I rather own physical through something like a Goldmoney account?  Yes, but I don't want to pay the 10% penalty since I am not yet 59.  Do I think it worth the effort to create some kind of self-directed IRA trust that allows me to hold physical myself and still be an IRA... not really, because I already hold physical outside of my IRA investments.  That is just me.  

I have a very high degree of trust in PHYS.  It is 100% allocated, meaning that I own the Gold behind my shares.. and the Gold is held outside the banking system, in the Royal Canadian Mint vaults.  Most important of all;  Large shareholders can (and do) exercise a delivery option.  You can get the Gold.  The prospectus is quite clear.  There are no sub-custodians (knock on GLD).  Finally, I trust Eric Sprott.. he is one of us.  I have heard him in numerous interviews...  he is awake, and as upset over the absurdities of our current system as any of us here.  My purpose in discussing the amount of Gold available in PHYS is simply to show that there ain't too much of it out there.  Unlike GLD, PHYS is NOT a tracking fund... the price of the shares is based on the supply vs. demand of said shares.

 I would venture a guess that most PHYS shareholders are awake and understand why they want to own PHYS vs. GLD.  This will become quite visible when the market finally breaks.. when the paper manipulation finally becomes untenable.  Today, amazingly, and because of Western apathy toward Gold, you can buy PHYS shares at a discount to the price of Gold of 0.45 %;

         http://sprottphysicalbullion.com/sprott-physical-gold-trust/net-asset-va...

Extrapolating that this easy availability of discounted shares will continue to be the case once something breaks in the market is just as silly as believing that you will be able to go to the coin shop and buy an ounce of Gold, aka an ounce of monetary insurance, once the flood truly begins. 

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Jbarney
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170,000 Tonnes of Gold

This should be interesting....if there are 170,000 Tonnes of gold around the world, approximately, what is the best source of information on who owns what? I am very naive on the size of the total market, the traders, the players, etc...but I'm very curious about the breakdown of where that gold is located. Jim, in the article you reference I think China was linked with raising their reserves to 5,000 Tonnes...most of that coming within the last couple of years....but even when discussing China...how much of that is private ownership and how much of that is within their own reserve system? Same goes with India....if they are hoarding gold and silver....is it the little guy making purchases or are we talking about governments looking at the United States and knowing the situation here can not continue for ever? I would think it would have to be a little bit of both.

170,000 tonnes of gold; The VAST majority of that has to be privately owned? Correct?
On a totally different note....I can't remember the guy, I wish I could remember who it was....I think he was an Indian economics professor....he was basically arguing that when it came to the price run up near $50 dollars a couple of years ago that there never really was a chance of a "shortage"; His argument was that as the price went up...you would have people who purchased at $5 and $10 selling into the market and taking their profits. His argument was that there would be no shortage....that private sellers would naturally be drawn into cash reward for a good investment. Based on all I have listened to and researched, this perspective has some merit, but also was a bit short-sighted with the overall supply and demand equation for silver.

I did make that purchase today. Still feels fantastic every time. Even if it was just an ounce. Looking at it....there is no question I would rather have the ounce of silver over the paper.

davefairtex's picture
davefairtex
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demand follows?

JimH-

I noticed you said this:

My personal view is that Western (physical) demand is not going to lead.. it's going to follow.  Western demand won't awaken until price explodes, and by then (already actually) there won't be much Gold left for Westerners to invest in.  The Gold that has flowed out to points East is not going to come back.  Not at $1300, or $1400, or $1500.  It will not flow back until there is a reset of the price to truly reflect supply vs. demand.  The purpose of my writing here is to help folks awaken to the fact that our situation today, with Gold available, and reasonably cheap, will not, cannot, continue.  The situation we find ourselves in today is the result of official manipulation.. and this is where Dave and I disagree (understatement).  I align myself with folks like Dave Kranzler on this point;

Gold won't pop until western demand returns.  That will happen all on its own, when it is time.  All this talk of "official manipulation" is just stuff put out by people who can't imagine why the price of gold would ever drop.  :-)  "Sure, commodities can tank, but gold should continually move higher because...well...because its GOLD after all!  And gold is just so cool..."

Goldbugs imagine some sort of "Fiat Pearl Harbor" scenario where suddenly, everyone wakes up one day and decides they need to own gold.  I just don't see it happening like that.  (And even Pearl Harbor shouldn't have been a surprise...and wasn't, not strategically anyway).

Some group of western gold buyers will start buying again because of some fundamental motivation - like a flight to safety, or incipient inflation, or as a correlation with a rising commodity index.  Then another chunk of buyers will hop on because they are trend-followers.  Buying from both parties in the west will continue as long as the reason remains in place.  Once in place for long enough, the trend will drag another bunch of later-stage trend followers on board.  Then the bankers will ratchet up the hype, telling everyone you have to own gold or you're an idiot, retail will start to become involved, then soon prices will start going vertical, those bankers will sell out at the top, and Ma & Pa Kettle will break down and buy - right at the peak.  As usual.

We may have a Fiat Pearl Harbor someday, but just like Real Pearl Harbor, it won't come out of a clear blue sky.  We'll get signs of a trend change first.

I do agree with Jim, gold is available right now in small coin form, and is reasonably cheap - and this may not be the case forever.  Gold in retail coin form can become quite scarce very quickly, since most of the world's gold supply is in the big bars.  And unless you don't mind lugging around 400 oz (33 pounds!) bars, if there is a retail buying panic, the 1oz items will probably be sold out in relatively short order.

So when I hear of gold running out, that's what I think of.  Gold coins - running out.  Given there are 170k tons of gold out there, we won't ever run out, especially if you aren't picky about the form it comes in.  It will always be available for a price.

The whole thing about "gold moving from east to west and never coming back" - eh.  I'm not a believer in that one.  If you really want gold to "come back" from asia - fly there, bring out your cash, buy some, and take it back with you.  Gold jewelry is priced only about 5% above melt value in Thailand.   It's a "wearable savings account" for many.  That's about the same premium you'd pay for an actual coin in the US!

And of course if you are questioned coming back across the border, why, you are just wearing those 15 gold chains like your hero Mr. T!  "I pity da fool..." [*]

http://www.imdb.com/name/nm0001558/

[*] I have no idea if this approach would actually work.  I certainly haven't tried it!  :-)

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Jim H
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Gold flow

Dave,  You and I don't actually disagree - I am not saying Gold will never flow back to the West.  I said, 

  The Gold that has flowed out to points East is not going to come back.  Not at $1300, or $1400, or $1500.  It will not flow back until there is a reset of the price to truly reflect supply vs. demand.

So, although I did kind of say that Gold won't flow back in my first sentence here, I am really saying that it won't flow back as a result of some incremental price increases.  I think we agree that it will flow (more) freely if the price is such that supply = demand.. i.e. if the price is a true free market price.  As usual, our quibble, and for me it's more than a quibble because it is such an important aspect of how one views Gold, is whether or not today's price is in any way reflective of true physical supply vs. demand.  I say no.  I say the current price is way off, driven there by paper market manipulation.  I hesitate to suggest where the true supply vs. demand price lies... is it $2200?  Is it $3200?  Is it $4800?  I don't know.. but I would suggest that we are going to find out.. .slowly at first, and then all at once  : )

Let me really hone in on another point Dave made.  By talking about buying some Gold in the East and bringing it back to the West in small quantities, which surely is possible today, he implies that there is some kind of flow channel, or arbitrage channel available that should or would give us access to the Eastern hoard.  There is not... please consider the situation in China, where the bulk of the Eastern hoard is being accrued.  From our helpful friend Koos Jansen;   

Chinese Gold Trade

Bullion import into the Chinese domestic gold market can only be done by banks that carry a PBOC gold import license, though, for every shipment anew approval must be submitted. Bullion export from the Chinese domestic gold market is prohibited. At this stage there are fifteen banks that enjoy a PBOC import license:

https://www.bullionstar.com/blogs/koos-jansen/the-mechanics-of-the-chine...

Please read the highlighted sentence again, and let this sink in.  Gold in bulk flows only one way - into China.. and this is the rule.  Gold is flowing out of the US, Canada, and the UK.. but it is not, CAN NOT, flow back, in bulk, at least for now.  

So, Dave can say whatever he wants, and he does;

      The whole thing about "gold moving from east to west and never coming back" - eh.  I'm not a believer in that one.

But what data is he looking at?  Certainly not this;

According to the data put out by the official sources from Australia, Canada and the United States, these three countries had combined gold production of 642 metric tons (mt) in 2014.  Australia was the number one producer at 275 mt (Australia Resources & Energy Quarterly Report – March 2014), the United States came in second (USGS estimate), and Canada placed last at 152 mt (Natural Resources Canada Monthly Production Statistics 2014).

If we look at the bar on the right side of the chart, these three countries exported an estimated 1,057 mt of gold, or 415 mt more than they produced.  This is an amazing amount of gold exports when we consider China and Russia hold onto the majority of their domestic gold production.

http://srsroccoreport.com/important-gold-chart-every-investor-in-the-wes...

So, I have shown how the Gold is in fact flowing West to East.. and there are many, many more examples one can find, showing UK disgorgement, Swiss refinery volumes and flow direction, etc.  I have also shown that, by law, China is a one way ticket for that Gold.. at least for now.  I have shown you how Gold is not allowed to flow out of China, and yet it is flowing out of the West, well beyond that which is mined yearly.  

How can one understand this big picture better?  I suggest the reader think about something called Gresham's law.  From Wikipedia; 

Gresham's law is an economic principle that states: "When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."[1] It is commonly stated as: "Bad money drives out good".

This law applies specifically when there are two forms of commodity money in circulation which are required by legal-tender laws to be accepted as having similar face values for economic transactions. The artificially overvalued money tends to drive an artificially undervalued money out of circulation[2] and is a consequence of price control.

I would suggest that the horrific status of Western investor sentiment about Gold has been brought about, successfully I might add, by the counter intuitive price smashes.  But sentiment has not been crushed in the East.. in fact they know a sale when they see it.  They know that Gold is better money than their paper, or any paper, at current exchange rates, and they are hurrying to make the exchange as quickly as they can.  For whatever reason, Dave would argue that this is not happening.  It decidedly, quantitatively, demonstrably, is.

What we are witnessing today in the flow of Gold from West to East is Gresham's law in action, writ large.  Nothing more.. nothing less.  The West has undervalued Gold, purposely, in a cynical effort to maintain the appeal of the dollar.  The East, led by China and India, are sucking it up.  The plan to suppress the price of Gold will fail.  When it does fail... and this is the whole point of my piece about numbers... there won't be much Gold left for the West.  How do you think this is going to work out?  Do you have the Gold you want in hand now?  What will happen to Silver when Gold goes no bid.. when nobody is even willing to sell Gold in the West?  Good fodder for a future piece I think (thinking of you JBarney : )      

        

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davefairtex
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not much gold left?

Ok, Jim.  Let's say China is the roach motel of gold.  It goes in, but doesn't come out.  Let's be optimistic and say that China has 10k tons.  And its never coming back.  How much gold does that leave for the ROW?

160k tons.  Not much left.  Better get yours while you still can.

What's more, although you suggest that just because China says gold exports are prohibited, that suggests that laws in China are actually enforceable, which they really aren't.  Although they do prohibit export - do you really imagine that if gold were trading for (what's your favorite price again - $2500, lets say?) China would be able to keep its people from swapping that gold for fancy properties all over the world?

A) there's lots of gold left.  Even if China is the Golden Roach Motel, there is still lots of gold left.  Most of it may not be in the form that you and I want to buy if a retail buying panic occurs - but there is lots of gold left.

B) China isn't the roach motel of gold, no matter what all the goldbugs fantasize.  As soon as it becomes profitable to export (i.e. if/when Shanghai starts trading at a significant discount to COMEX), gold will somehow magically find its way right out of China, regardless of the restrictions.  Kind of like the RMB does today, even though there are strict capital controls in place to prevent that very thing from happening.

As far as these "counterintuitive price smashes" go - they are only counterintuitive to those who don't care to see how the various price movements correlate.  Currency effects, commodity price drops, it all affects gold.  Not in goldbug fantasyland of course, but in the real world - gold really is connected to the rest of the prices of real things.

That's why its an inflation hedge - because it is connected to the prices of other real things.

 

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Jbarney
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You Guys Are Great

Ahem.  My knowledge of the gold trade is limited.  I feel like a student watching while two professors go at it.

If I could ask a few questions about China/India....

If China does have somewhere between 5K tons and 10K tons...who owns most of that number?  I know it is all speculation, and I asked this question in an earlier post...but is the gold in China owned by their banking system?  Is there any estimate how much gold in China is privately owned?  Is there any way to know?   I mean they have almost 2 Billion people.  Wonder what the private ownership numbers are.  Same thing for silver.

And India...with a billion and a half people in India....the "official" number they are importing....do those numbers represent precious metals held within the banking system?

Sorry....professors Dave and Jim....I hope I am making sense!

Peace

Jim H's picture
Jim H
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Your right Dave...

It's Fiat currency that is in short supply...  deflation, right?  Not enough unbacked fiat currency.  Lots of Gold.  You are a broken record.. and you show tremendous energy and tenacity in your defense of the, "rightness" of the current Gold price, even if it is set on a paper futures exchange that holds a mere 20 tonnes marked deliverable. 

There is no stronger defender of the value of fiat money than you Dave.  That the printable money needs defenders, especially in this environment, is obvious.  Gold, at 0.7 ounces extant, per person in the world, really needs no defender - it just is.               

The value of something is determined by what someone will sell it for.  Much of the Gold being accrued today is being accrued for reasons that I have stated;  It is Gresham's law at work.  That means that Gold, which is the undervalued money in this example, is being driven out of circulation.  Because you (Dave) are under the illusion that the current price is at or near the balance point between supply vs. demand, you can imagine that the Gold will flow with marginally higher prices.  I am saying that it will not.. once the price starts to break, the owners who hold it for this very purpose of insurance, are not going to sell.  It is this dynamic that will cause one of the most historic price bubbles ever in history.  This is yet to come.  

Why is this coming?  How can I be so sure?  Simple;  Currency collapses have happened throughout history, but they have almost always been fairly isolated events, whereby the world outside of a country or region kept operating, and the country or region in question was able to ride things out via cross border trade, and use of alternative (paper) currencies.  This time will be different, as the currency dominoes will all start falling together.  There will be no functioning alternative but Gold and Silver.  How and when this dynamic finally plays itself out is an open question.               

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Boomer41
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Posts: 135
Alternative Currency

I'm with you Jim. As I have posted elsewhere on the site, when local currencies have failed in the past (Argentina, Russia, Zimbabwe) a black market immediately springs up, usually using US dollars as the alternate currency. When, as you say, "all the currency dominoes ... start falling together" there will be no alternate currency for Americans (or anybody else for that matter).

This is why I think owning pre-1963 'junk' silver coins is a good idea. Easier to take to the farmer's market than a wheelbarrow full of million-dollar bills.

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KennethPollinger
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Posts: 654
Jim's liking of PHYS

Jim wrote: "Most important of all;  Large shareholders can (and do) exercise a delivery option.  You can get the Gold.  The prospectus is quite clear.  There are no sub-custodians (knock on GLD)."

What is your or the prospectus definition of "large" here??  And if one is not "large" enough, what happens?

Ken

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Jim H
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PHYS redemptions

From the prospectus;

redemption requests must be for amounts that are at least equivalent to the value of one London Good Delivery bar or an integral multiple thereof, plus applicable expenses. A ‘‘London Good Delivery bar’’ weighs between 350 and 430 troy ounces (generally, most bars weigh between 390 and 410 troy ounces).

http://sprottphysicalbullion.com/media/1341/sprottphysicalgoldtrustprosp...

You would have to own shares worth almost $500K in order to be able to redeem Ken.  Otherwise you sell your shares on the market for cash.  

 

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davefairtex
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Posts: 5459
it's not about china

JimH-

I see you failed to address my central points.

1) Contrary to goldbug canon, China isn't the Gold Roach Motel after all.

2) Even if they were, if they take off 10k tons of gold, there is still 160k tons left.  160k tons left isn't the same as "the West has none left."

I agree with you about currency collapses.  I also agree with you that we have the potential for one now, depending on the government reaction to the debt bubble we are in right now.  The mechanism of a normal debt bubble pop is one that typically ends in a deflationary crash.  If that's where we end up, gold won't do so well.  Deflationary crashes end up with a falling gold price, because fiat money is in short supply relative to the amount of debt denominated in that fiat currency floating around.  Most people focus on retaining their real assets - which means they need to feed their personal debt beast, which means the demand for fiat currency does indeed rise.

All real assets fall in price during a deflationary collapse.  Including gold.

If the government reaction to deflation is to print money (and by this I mean, really print money - hand it out to real people, or have the government deficit-spend it directly into circulation), why then we'll see retail start buying gold again, right alongside the gang at COMEX.  Gold price will shoot higher.  And the gold will run out - not the world gold supply, but the retail gold that we can all purchase, because the inventory of retail gold isn't very big, and the machinery in place to convert from big bars to coins isn't large enough to service a major uptick in retail gold interest.  At the same time, the hedge funds will madly run around and buy COMEX gold contracts.  Is it retail buying or COMEX buying that moves the price?  It's COMEX buying, of course.  That's where the real money is.

Once the government starts really printing, and the market reacts as expected, my sense is, given the government's arbitrary and enthusiastic repression of pretty much everything right now ("cash in your car?  You must be a drug dealer.  That's ours now, thanks"), government may even eliminate COMEX, alongside all the gold funds, in an attempt to prohibit people from finding a safe haven in the hated gold.  That's just what they tend to do.

At that point - gold exists, the world hasn't run out - but us poor retail slobs don't have access to it. Where gold can still be bought (most likely in Asia and India), the price would likely be substantially higher.

That's why buying gold now is a good idea.  While we still have access to it.

Note: this is not because China is the roach motel of gold.  Or because gold is running out.  It is because if, in reaction to the deflation we all expect, the government both a) prints money, and then b) eliminates access to alternatives (like gold ETFs, etc), we won't have access to a portable hedge against inflation any longer.

See - you and I agree about what we should do, but I don't buy into goldbug fantasies about what is going on today.  The stories don't hang together.  Some breathless tale about "gold running out" and how "it will never come back" insults any reader's intelligence who has a basic capacity to add two numbers together.  "Oh my gosh China is buying the whole world's mine supply"  - about 2% of the total gold that exists.  Whoop de doo.  Nobody cares.

Until real printing starts, and government starts in with some serious repression, then everyone will care.

The determinitive factor here isn't what China is doing, it is what your local government will be doing.  Ignore China.  This is about future government actions, and what alternatives you and I will have once those actions are taken.  That is an argument that makes sense - it hangs together.

Reasons matter.  They need to make sense.  Many goldbug arguments just don't.  A semi-intelligent reader, who is equipped with basic math skills and an understanding of human nature, can trivially pick apart all the China Gold Roach Motel stories that are floating around today.  So why must we engage in such things?

Buy gold as your insurance policy against the possible direct money printing reflation efforts that could easily happen.  Seems pretty simple to me.

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KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 654
Jim and Dave AGREE!

"See - you and I agree about what we should do"

Well said.   The story/analysis behind all this back and forth about the REASONS do not seem to me to matter that much right now.  The KEY point:  there is ACCESS right now.  One can gamble that there will be access for a long time, but then, who knows?  Intellectual bantering is indeed fun (especially with the subtle digs that each uses: who's winning?)

For me, NOW is the time to load up, while access is available.  The price might move down, but who knows when the various bubbles might pop or serious government intervention is finally called on.

I'd like to see some similar comments about SILVER, in terms of access???  Same call or not, and why??

In sum, since the two professors agree, even though for different reasons, let's give them a BIG THANKS.  

Saludos from Costa Rica.  Ken

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KennethPollinger
Status: Platinum Member (Offline)
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Posts: 654
Jim and Dave AGREE! Part 2

Upon rereading my prior post, I must apologize to both Jim and Dave for my use of the term "banter," as I am doing what I accuse them of doing (subtle innuendos).  Should have said "excellent analysis."

However, my main point:

Realtors say: LOCATION, LOCATION, LOCATION

Gold Buyers say: ACCESS, ACCESS, ACCESS

Thanks, Jim and Dave.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2387
Thank you Ken...

For putting this all in perspective.  I get too emotional about my differences of opinion with Dave.  When you get back I want to talk to you about Costa Rica  : )  

Regarding Silver, if there are 170,000 tonnes of Gold extant, and maybe only 50,000 tonnes of Silver reserves spread between public and private holdings (most gets used and not recycled)... what does this say about availability once SHFT ?  Do you think Silver is going to stay at < $20/ounce once folks wake up, via some "exogenous" monetary event that nobody could have ever predicted, and they start looking for a safe haven?  Do you think the Silver:Gold ratio is going to stay as high as it is now?  Did you note my statement earlier that my personal Silver:Gold ratio is 40:1 on an ounce basis?

You might like this too JBarney;   

    http://www.zerohedge.com/news/2013-03-01/visualizing-all-silver-world

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2387
More on Silver

Interesting report from SRSRocco.. who understands the energy angle pretty well;

http://srsroccoreport.com/banking-cartels-real-enemy-physical-silver-inv...

So, what do I believe will impact the price of silver in the next several years?  Physical silver investment demand.  If we look at the chart below, we can see two significant trends taking place:

Silver Bar & Coin Invesment vs Industiral Applications #1

You will notice that industrial silver fabrication continues to fall (shown in these three-year time periods), while physical silver investment demand doubled since the 2006-2008 period.  From 2006-2008, total world physical silver investment demand was only 14% of industrial fabrication, but increased significantly to 33% in the 2012-2014 time period......

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5459
how much silver is out there?

I'm sure some of you have seen this before.

http://demonocracy.info/infographics/world/silver/silver.html

All the world's silver in all forms: 777k tons

EZ-access reserves: 30k tons

Mine supply: 33k tons/year

(implication: we have one year's supply on hand, give or take; in oil, we have about 90 days)

Silver demand from coins: 8k tons/year

https://www.silverinstitute.org/site/supply-demand/

Here's a very long-dated timeseries I picked up from http://www.measuringworth.com/.  Now that's perspective.

Jbarney's picture
Jbarney
Status: Silver Member (Offline)
Joined: Nov 26 2010
Posts: 233
Jim H wrote: You might like
Jim H wrote:

You might like this too JBarney;   

    http://www.zerohedge.com/news/2013-03-01/visualizing-all-silver-world

 

Wish that is what my backyard looked like.

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