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Brace Yourself for the Coming Gold Shortage
Brace yourself for the impending gold shortage. Gold shortage? Yup. With the launch of a flurry of ETF’s devoted to the barbaric relic recently, total ETF holdings have soared well past 60 million ounces worth $65 billion, more than total world production in 2009. The grand Daddy of them all, the SPDR Gold Shares (GLD), now has a staggering $42.7 billion of the yellow metal, making it the second largest ETF by market capitalization, and the fifth largest gold owner in the world.
When gold suffered a hair raising $150, 12% pull back from the all time high in December, I was deluged by traders asking if this was the peak, if it was the final blow off top, and if gold is finished as an asset class. My answers were no, never, and not on your life.
A tidal wave of fiat paper currencies is now flooding the world financial system at an increasingly alarming rate. Obama has not suddenly become a paragon of fiscal restraint. Bernanke has not morphed into a tightwad. When I pull a dollar bill out of my wallet, it’s as limp as ever.
In 2008, South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons. It now ranks only third in global production of the yellow metal, after China and the US. Severe electricity rationing, a shortage of skilled workers, and more stringent mine safety regulations have been blamed. Choked off credit has frozen the development of new capital intensive deep mines, as it has for everybody else. Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce.
In the meantime, the financial crisis has driven flight to safety demand for gold bars and coins to all time highs. Last year, the US Treasury ran out of one ounce $50 American Gold Eagle coins, now worth about $1,150. Competitive devaluations by almost every central bank, except Japan, mean that currencies are not performing as the hedge that many had hoped, especially the Euro.
It all has the makings of a serious gold shortage for the future. The huge growth of the middle class will impact gold prices, as it has with other commodities. Linear growth in supply will get overwhelmed by a Malthusian, exponential growth in demand. Last year’s downturn is looking increasingly like a mere blip in the eight year bull market.
If you forgot to buy gold at $35, $300, or $800, another entry point is setting up for those who, so far, have missed the gravy train. We could be seeing a replay of 2008-2009, where the yellow metal traded in a sideways range for many months before blasting through to a new all time high and quickly tacking on 25%.
Start scaling in around $1,040. That’s where the Reserve Bank of India started the recent love fest for the barbaric relic with its 200 ton purchase in November.
If the institutional world devotes just 5% of their asset to a weighting to the yellow metal, and an emerging market central bank bidding war for gold reserves continues, it has to fly to at least $2,300, the inflation adjusted all time high, or higher.
ETF players can look at the 1X (GLD) or the 2X leveraged gold (DGP). Stock investors can entertain shares in Barrack Gold, the world’s largest gold producer. I would also be using the current bout of weakness to pick up the high beta, more volatile precious metal silver (SLV) and platinum (PPLT), which have their own long term fundamentals working in their favor.
For more iconoclastic, out of consensus analysis, visit www.madhedgefundtrader.com, where conventional wisdom is drawn and quartered daily. You can also hear me in person weekly by listening to Hedge Fund Radio by clicking here at http://www.madhedgefundtrader.com/Hedge_Fund_Radio.html
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gold sucks because everything else is in such a healthy position to grow. hmmm
Gold sucks and I will laugh at all you gold bugs predicting the end of fiat money and the end of the world. Do whatever you want, follow Paulson and Sprott, buy gold, not just stocks but gold bullion. Gold, gold, gold! Any Canuck remember Bre-X? LOL!!!!
stick to your pension fund analysis numbnutts.
Yes, go arrogant mr Kolivakis. My goodness, what a childish behaviour. How did you predictions do so far? And the solar stocks? Get a life.
Yep.
You've sure got history on your side in that argument.
Fiat currencies never fail, right?
Every fiat currency that has ever been tried is still in existence right?
You can't lose.
+1000
Hey maybe gold will go down some more. The more it goes down the more I will buy.
Preserving wealth and insurance vs. our pals at .gov and the Treserve.
Ask Leo how those solar stocks are doing. Maybe he should just go to the source and stockpile sunshine. I guess he does like "gold" in the form of the golden rays of the sun.
I translate that as gold "going down" to dollar "going up"? The way I see it, gold doesn't GO anywhere. As has been said elsewhere: If the price of gold "goes down" by 20%, how much less gold do I have? Gold is not for trading -- period. Gold/silver ETFs are simply methods by TPTB to keep the prices suppressed or controlled.
Short it. You will make a killing. LOL.
Paper money sucks. Gold is real money. Dollars are an 'IOU nothing' backed by debt.
I can't buy food with gold. I can't eat gold. I can't put gold in my vehicle. gold is valuable to anybody living in deadwood or king tut's tomb.
Gold sucks. Wow. You're becoming a buffoon, Leo. While it's true that gold bugs get a little excited, the same is true on the other side of the trade. When I look at a gold chart (I use the futures) I see a strong move followed by an orderly pullback to support. We'll see if support holds. If I had to guess I'd say it won't because I think the dollar's going to run for awhile BTW, the dollar has moved back to resistance so everything's in line. Gold sucks? No more than anything else sucks. No less either. Thanks for the insight into Leo's mind. It's a little like being on acid.
I do not see gold rocketing hiher
What shortage ?
Can't blame ya. Something with an impending shortage doesn't keep crashing like Gold has been - for the past two years.
For all the hype - Gold does not seem to going to new highs.
Reports of China buying, crashing dollar ?
Gold stocks like NEM and ABX are not showing any sign of strengh
Gold is a store of wealth - Not a profit machine.
Unless you are a very nimble trader
nothing new, allway the same old stuff, 3 x recycled.
Dinner with gold bug.
Gold traded in that range below $1000 for freaking 18 goddamn months. Then it rose for just 3 months (in 2 of those i.e. Sept. and Oct. it only rose in the first week followed by sideways to downward action for the rest of the month) for a gain of about 22%. If we are to start on another long-ass "consolidation" after such a MEASLY rise (considering the HUGE 18 month consolidation), then this is the WORST "bull market" I have ever seen. Shitty stocks in bear markets have performed better.
That said, I guess as long as CRIMEX and the fraudulent GLD is in business, we can expect Gold to remain capped and more such "hair raising" declines and slower than a snail progress of the Gold bull. It's funny how 99% of the waterfall declines in Gold occur only during CRIMEX sessions. Anybody trading Gold HAS to be aware of this fact by now. Yet, if the majority of people (including the so-called "smart/big money") as a collective still place their faith and money in such fraudulently managed "markets" and trade Gold in ANY venue in the "bucket shop" that is the US, instead of buying the physical, then this is a very sorry commentary on the state of mankind's intellect today. I will not be surprised if the human race ceases to exist withing the next few decades. The majority don't even possess the bare minimum thinking skills needed just for survival.
I want to post this comment near the top before
people read the other comments! I do not know your ages
but it is evident that I am much older.
I have made a life of owning gold. I started in 1968
when the only way that you could legaly own it was through Canada.I was young and purchased ounces for $35.00! I waited and accumulated it till it hit around $850.00 in the early 80's. I was still young back then and was able to pay cash for my first house.
I have followed Gold ever since and found that the way to buy and save Gold was through Rare Coins!! The amount of profit that you make far out paces buying boring old Bullion.
When you purchase Gold in a rare coin form you are buying History and Rarity! The price never go's down. Try picking up an old coin price guide and look at what coins were 30 years ago.You will be suprised at the 500% to 5000% gains in the rare coin market.
With this in Mind don't expect to "FLIP" items as you young people try to become rich overnight,it just does not work that way.Patience is the only way to sustain wealth. I am now only 55 years of age and I am retired,WHY?? because I never sold out to the lies being perpatrated by fiat paper pushers that have only their future in mind.
Don't buy PAPER buy the real thing and make sure it is rare!! Then you will be where I am in a few short years.
Remember trust no one with your wealth, History is full of lies and Crooks. If you are not smart enough to maintain your own wealth and must rely on someone else to help you then you are indeed all fools!!! Thank you CAT
I share your frustration with the seeming intransigence of the gold market and the manipulation. However another way to look at the price of gold is to remember that it has averaged a 21% gain EVERY year for the last 8 years.
I can live with those kinds of returns.
Along those same lines though, the obvious question is; Will Gold follow equities on the way down? If we do not see a dislocation, or an unlinking, from equities, then we would have to conclude that Gold is not as popular a hedge as some say. The question with Gold is what really effects its price for potential buyers. Is it world events? US monetary policy? What? Who are these potential buyers? Government? Central banks?
IMHO I think Gold will disconnect from equities, but not now. I am really looking for a pronounced trigger to motivate the herd. Large moves in Gold spot price will be largely dictated by events, I myself am looking for a correction with equities down of about 15%. When this happens I will increase my holdings. Without a pronounced trigger of some sort, gold will not change its historical behavior.
Mark Beck
Ask yourself what will happen when the price of Gold is set free by the collapse of the COMEX and then shortly after the collapse of the Dollar system as a whole? What will become of all those little grams and ounces of Gold that have been sold to so many little no bodies around the world for the last 30+ years of Gold price suppression? Remember the little guy in Vietnam and China wouldnt have a chance to buy Gold if reflected its true price. Why would the banking elite want Gold spread far and thin through out the whole world?
Do you think its possible that the Architects of the Euro may have foreseen the end of the COMEX and thats why they structured a currency with 15% Gold reserves. So it wouldnt be completely vaporized like the dollar when Gold melts up? It will trade freely next to Gold when the Gold price is set free from the COMEX. Gold will be savings and wealth, and the Euro will be just a currency for spending. If the EU prints too many Euros Gold will freely move from one regional currency to another, around the world. The Gold community and the world at large has some big surprises in store when the COMEX goes bust, things are not at all what they seem.
Watch Greece for the next few weeks if you dont believe me. The Euro is the banking elites baby, it is an important part of the next system and they will not let anything happen to it.
For more info read,
fofoa.blogspot.com
"squid pro quo": euphemism for a fiat currency; issued with no gold backing
ASK YOURSELF: do you really trust that these ETFs have the gold they claim and GLD's counterparties that store said gold are not leasing it out or creating/forming/leveraging some other paper gold on top of their paper gold. As an example, GLD can hold NOT GOOD bars for proper delivery to the market and they do not insure their gold holding. Add to that, there are many other serious situations one should consider before choosing GLD or other ETFs.
Read GLD's 10-k filing at www.spdrgoldshares.com/media/GLD/file/10k_Sept08.pdf and pay special attention to pages 54 to 62.
Bottom line, if you want to invest in gold i would do as GLD's largest shareholder did months ago.... they sold their GLD holdings and purchased physical metal and took delivery. In this day and age counterparty risk is to be avoided imho.
PS: Beware gold covered Tungsten bars reported to be from the USA vaults, so test your 400 oz bars or buy JM Kilo bars (CAD Maple Leafs for coin purchasers).
OR, you can buy raw Gold, in the 23 Carat range, origin; Ghana, West Africa.
I will be prepared to make a FCO sometime in February, 50 kgs minimum for export, or smaller amounts available on "off market" transactions.
Anyone thinks that "gold is a bubble" or had a "blow off top" or suffers from "hysteria" when it made a three-month, 20% rise above its old highs after 18 months of consolidation is not going to be perceptive enough to understand the points you just made.
"Gold is Good"
http://www.youtube.com/watch?v=7upG01-XWbY
+ 1000