When you look at the math, especially the supply/demand and inventory/delivery “math” there is only one question that remains. The question is not whether the precious metals are grossly undervalued. It is not whether supply can meet demand. It is also not whether known inventories can continue deliveries at the pace of the last couple of years. The only question which remains is when. When does the current unsustainable and lopsided (soon to be proven fraudulent which yes, includes “intent”) business model of the precious metals market blow up in a default?
China imported 900 tons last year and India roughly 800 tons versus total global production of 2,500 tons, did the rest of the world make due with only 700 tons? Hardly. So far this year through March, China has already imported some 372 tons putting them on a pace of 1,500 for the year. This figure does not even include April where we know that VERY conservatively their appetite increased by 50% from the previous month which was just over 220 tons. So through April a conservative number would be 600 tons for the trimester making an annual pace of 1,800 ton for that country ALONE!
So where is all of this gold coming from if mine supply cannot satisfy the current and apparently exponentially growing demand? You can look at the numbers from the Shanghai exchange. They reportedly delivered 1,900 tons in 2011 and 2,400 tons in 2012. So far this year they have delivered over 1,000 tons. We also know that the COMEX, GLD, JP Morgan and HSBC inventories are being seriously bled down. Not by “leeches” mind you, no, the current deliveries and drawdown of inventories is like open arterial wounds gushing into the streets. It has become so serious at JP Morgan that they report only to have 137,000 (just over a whopping 4 tons) ounces left of “eligible” gold for delivery.
Over the course of the last 2 months there have also been reports of investors withdrawing their “registered” gold. This has come about not because people “missed” their metal and wanted it delivered so they could see how shiny it was. No, these “withdrawal pains” (pun intended) have been requested because people are afraid of the gold not being there. They want control of their money and don’t want to be “MF Globalled” or “Cyprussed.” This mindset is adding to the “run” on inventories. The funny thing is this, IF the metal was not really purchased in the first place (Morgan Stanley… ABN Amro anyone?), these demands for deliveries will act as CURRENT demand. Call it “deferred demand” or anything you’d like, these requests for delivery will put further pressure on existing and real inventories OR on price as firms go out to actually buy the product to deliver.
As I said, when does the fractional reserve metals market fail? When does it end in the same fashion that every banking panic in human history has seen? When do investors change their gait from the current very brisk walk and break into an outright “run?” What is happening and will happen is absolutely no different than 2,000 or more years ago when the Goldsmith issued too many “credits” versus the amount of gold he was holding. The only minor difference is “scope.” 2,000 years ago there were no options, no futures, no derivatives (except for the letters of credit) and certainly no computers (except by those who built the Pyramids). The current and prospective “run on the bank (vaults)” is nothing new, only the scope is exponentially larger and the final action quicker when it arrives.
Hi Bill,
First of all I love your work and am always anxious to read what you have written for the day.
Got to be careful with the Chinese Imports from Hong Kong – you have to use net numbers and not gross, as some of the gold is rexported to Hong Kong from China.
For March the numbers were 223 Gross Imports and 130 Net Imports. See
http://www.bloomberg.com/news/2013-05-07/china-s-gold-purchases-from-hong-kong-expand-to-record-in-march.html
This does not distract from your case – annualized we are looking at over 1500 tons for China from Hong Kong alone at 130 net tons a month.
Hey, even Eric Sprott sometime makes the mistake of quoting the Gross instead of the net number.
All the best,
Guy
oops, yes you are correct. What I also forgot to mention is that Chinese production of Gold…never crosses their border. In any case, inventories are being drwn down and down and down…when they empty nobody knows.
Bill,
I hope the people taking their gold bars into the own possession think to have them drilled and tested due to the bad bars out there.
In times like these you just can’t trust any one to hold your wealth other than yourself. Sad but true.
Hi Bill,
I seek out your words everyday. So many write, but say the same things over and over. Your thoughts are always new and insightful.
I’m certain you will agree that we are all simply waiting for the “FALL”.
Nothing else matters except the truth: GOLD is GOLD. The Cartel,
Banksters nor the Government cannot change this law of nature.
B.
Thanks Bob for the kind words. And yes, this is all about the truth…or lack of it. I suspect that even those of us who know that it’s all been a lie will be shocked at how big the lies are and the lengths they have gone to to keep it all hidden.
Dear Bill,
I just wanted to tell you that I love to read your insightful columns everyday. We are so blessed to be able to gain from your knowledge thank you!
Mike
Thanks Mike, we try to fight the good fight every day. This is about truth when all is said and done. We may not be 100% correct about everything but we are telling the truth as we see it. Unfortunately, reruns of Leave it to Beaver, Superman and Gunsmoke/Rifleman can’t be found anymore.