Eric Sprott On A "Gold Tsunami"

Tyler Durden's picture

Gold Tsunami

By:  Eric Sprott & David Franklin of Sprott Asset Management

Ignoring real estate, most people invest their hard earned money in paper things. Stocks, bonds, annuities, insurance - it’s all paper, and it sits nicely in our bank accounts and shows up on our computer screens. Halfway across the world, investors in China and India have never trusted paper investments as a store of value - and they’re converting their hard earned paper money into gold and silver bullion. Not that this is anything new. It isn’t. But the scale and speed with which they are accumulating precious metals IS new, and it’s driving the fundamentals that we believe will lead to higher prices in 2011.

Demand for the metals is literally exploding in Asia, and it’s creating shortages of physical bullion around the world. The statistics are extraordinary. China, the world’s largest gold producer, now requires so much of the precious metal (in addition to what it already mines) that it imported over 209 metric tons (6.7 million oz) of gold during the first ten months of 2010. This represents a fivefold increase from the estimated 45 metric tons it imported in all of 2009.1

According to the World Gold Council, Chinese retail demand for gold increased by 70% from October 2009 to September 2010, representing a total of 153.2 tonnes of gold imports. Yet, over the same period, the demand for gold jewelry rose by only 8%.2 There is a clear trend developing for Chinese investment in gold as a monetary asset, and China is buying so much gold for investment purposes that it now threatens to supercede India as the world’s largest gold consumer. Chinese demand in 2010 is expected to reach approximately 600 tonnes, just behind India’s 800 tonnes.3 To put that in perspective, 2010 world mine production is forecasted to be 2,652 tonnes, which means China and India could collectively lock-up over half of global annual production.

Even more surprising is the increase in Chinese demand for silver. Recent statistics show that silver imports have increased fourfold from 2009 to 2010. In 2005, the Chinese exported just over 100 million oz. of silver.4 In 2010, they imported just over 120 million oz. This represents a swing of 200 million+ oz. in a market that supplied a total of 889 million oz. in 2009 - a truly tectonic shift in demand!5

We are seeing widespread evidence of major shortages of physical gold and silver bullion across the globe. The Perth Mint recently stated that: "Demand for our coins and medallions is strong, but the biggest demand is coming from banks and traders looking for kilo bars."6 Three weeks ahead of Chinese New Year, Asian dealers were reporting premiums in mainland Chinese gold exchanges of $23 per ounce.7 Even Jim Cramer has acknowledged the current shortage in minted US gold coins, stating on his CNBC television show in December that: "As someone who tried to buy U.S. coins in December, there was a real scarcity. My dealer reportedly just couldn’t get any coins - tried to sell me Australian bullion. Said there was a shortage. Very telling."8

While Chinese New Year celebrations typically drive gold demand in the month of January, there are stronger forces at work here. The Chinese are fighting the resurgence of inflation. To protect their wealth, the populace is turning to gold and silver as a store of value. Precious metals ownership is a relatively new phenomenon in China, where Chinese citizens have only been able to purchase gold freely within the last ten years. Ownership restrictions were lifted in 2001 when the Chinese central bank abolished its long-term government monopoly over gold. The Shanghai Gold Exchange was then created in October 2002 to replace the People’s Bank of China’s gold purchase and allocation system, thus ushering in a new era of gold investment in China.9 Investor interest in precious metals has increased dramatically since then, and new investment products are making gold more convenient to purchase and easier to own.

One such program recently caught our eye and speaks to the new era of gold investment within China. On April 1, 2010, the World Gold Council and Industrial and Commercial Bank of China (ICBC) issued a press release announcing a strategic partnership.10 Though seemingly innocuous, this press release introduced a completely new investment product for Chinese investors: The ICBC Gold Accumulation Plan ("ICBC GAP"). ICBC GAP allows investors in mainland China to accumulate gold through a daily dollar averaging program. The minimum investment required is either 200 RMB per month or 1 gram of gold per day (equivalent to approximately US$42).11 Customers may renew the contracts at maturity, convert them into cash or exchange them for physical gold. The accounts are perfect for investors who want to accumulate gold over the long-term. While gold accumulation plans exist in Japan, Switzerland and other countries, this is a first for mainland China. Kudos to the World Gold Council for their efforts in setting up and promoting the program.

The most significant fact related to the ICBC GAP program is how fast it has captured the investing public in China. One million accounts have already been opened since the program launched on April 1st, resulting in the purchase of over 10 tonnes of gold thus far. According to press releases, the ICBC GAP plan was taken up by a mere 20% of total depositors at ICBC, and was only launched in select Chinese cities during the test phase. The ICBC bank just happens to be the largest consumer bank on earth with approximately 212 million separate accounts. If we apply some realistic assumptions and arithmetic, it’s easy to imagine how large this program could potentially become.

Suppose, for example, the ICBC GAP plan were expanded to cover all ICBC depositors, and also expanded to the next four largest Chinese banks. Let’s further assume that the gold purchases within the plan enjoyed the same rate of growth as the test phase mentioned above. If we add all these numbers together, it results in gold purchases of an extra 300 tonnes of gold per year, or over 10% of the estimated 2010 global gold production.

The implications of this burgeoning Chinese demand for the gold market are immense. If these predictions prove accurate, the ICBC GAP plan could become the single largest buyer of physical gold on the planet. Considering that the program has only been launched in one Chinese bank thus far, imagine if it were extended to other institutions or other large gold consuming countries such as India, Russia or Turkey?

Speaking from Japan, the head of the World Gold Council recently commented on the early success of the ICBC GAP plan in China: "Here in Japan, it has taken over 10 years for the gold-savings account industry as a whole to reach 700,000 accounts. It is impressive that only one Chinese bank can exceed that level so easily, within one year, without PR or active marketing in-branch." The World Gold Council does their own arithmetic on how much gold the Chinese can consume: "In 2009, per capita gold consumption in China was 0.33 grams, up from 0.17 grams in 2002." Based on this data total Chinese gold consumption could range from 1,000 tonnes per year or more.12 This implies that the Chinese could consume almost half of the gold produced globally on an annual basis.

The ICBC Gold Accumulation Plan and other alternate methods of investing in gold have the potential to overwhelm current supply in the gold market. If a similar program were launched for silver accumulation, in the same dollar terms at current prices, it would consume over half of the silver produced each year! In Asia, only physical gold and silver will do… and unlike the supply of treasury bills, bonds or paper currencies, the supply of physical gold and silver is undoubtedly finite.

We believe Asian demand for physical gold and silver is akin to a tsunami. While precious metals prices have corrected on the paper exchanges, the inflation resurgence in Asia is quietly driving new, unforeseen levels of physical demand for the metals. While the world continues to float on a sea of paper, this massive wave of physical demand silently threatens to crash into the physical gold and silver market, potentially wiping out tangible supply.



1 Hook, Leslie. (December 2, 2010) China’s gold imports surge fivefold. Financial Times. Retrieved on January 31, 2011 from:
2 D’Altorio (December 30, 2010) China’s Gold Rush. Investment U. Retrieved on January 31, 2011 from:
3 Pearson, Madelene. (January 12, 2011) Gold Imports by India Likely Reached Record, WGC Says. Bloomberg Businessweek. Retrieved on January 31, 2011 from:
4 (December 2, 2010) Gold Imports by China Soar Almost Fivefold as Inflation Spurs Investment. Bloomberg. Retrieved on January 31, 2011 from:
5 The Silver Institute. Demand and Supply in 2009. Retrieved on January 31, 2011 from:
6 Campbell, James (January 12, 2011) Unrelenting demand for gold below $1400 - Perth Mint. Retrieved on January 30, 2011 from:
7 Ash, Adrian (January 12, 2011) Shanghai Gold Premium Hits $23/Oz, China Opens 1 Million Gold-Savings Accounts. London Gold Market Report. Retrieved on January 31, 2011 from:
8 CNBC: Buy this pause in gold’s bull run, "Mad Money" host Jim Cramer advises. Retrieved on January 31, 2011 from:
9 China Gold Report: Gold in the Year of the Tiger. The World Gold Council (March 29, 2010). Retrieved on January 31, 2011 from:
10 World Gold Council (April 1, 2010) World Gold Council and ICBC Enter into Strategic Partnership to Promote China’s Gold Market. Retrieved on January 31, 2011 from:
11 World Gold Council. (December 16, 2010) World Gold Council and ICBC launch first gold accumulation plan in China. Retrieved on January 31, 2011 from:
12 Ash, Adrian (January 31, 2011) Gold Shorts Beware China’s Million-Strong Gold Savers. Forbes. Retrieved on January 2011 from:


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Jason T's picture

this idea of "not being able to eat it" is a joke right?  


Farmers in Germany had their graneries full but would not accept the confetti from Berlin.  But would surely accept gold or silver.  Who do you think ate?

LawsofPhysics's picture

I am a farmer.  Mostly soybean.

So, yes, I will happily take gold and silver.

asdasmos's picture

Wake me when they make edible dollars....


What makes you think people will not accept gold and silver?

downrodeo's picture

+1 (troy oz. of gold yo!)


I don't even feel like smacking a person when they say that to me. It is such a tired argument, and I can't believe that anyone would use it in earnest. Instead, I smack myself as I must be dreaming. For some reason, my last discussion about gold reminded me of my first fight...with Tyler.


mediahuset's picture

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CPL's picture

Are you using any of the North American brokers anymore?  The Chinese brokers I deal with in Vancouver pay in silver for the corn I ship them.  Even send the containers to Ontario.


Personally I like the fact I have been getting paid in silver instead of Canuck bucks or USD.  Last years harvest is now worth 30% in terms of capital.  Might be expanding my land holdings a couple more hundred acres and hiring someone to deal with the brokers to shake a better deal out of them.

goldsaver's picture

CPL, I will assume you are not a lying troll making up a story. This is fascinating to me. Chinese dealers are paying you in silver for your grain? Do you have a silver price for the grain or is it based on CND rates? Did the Chinese offer to pay you in silver or did they accept your demand that they do so? Do you know of any other grain exporters getting paid in Au/AG ? How do you deal with tax issues? Report the value of the silver in CND or oare they paying in maples (face value)? This could be a very interesting unreported development.

Hephasteus's picture

The fed fucked up when they got in the money business. You do not have to pay taxes. It's all corporate law and yes when the fed says you are voluntary tax payer they mean it. And when supreme court justices say everyone who is in jail is there voluntarily they mean it. They just don't tell you how to go about NOT volunteering.

Gordon Freeman's picture

Don't believe everything you hear...

CPL's picture

Last two years and I just do corn seed, not food, just seed.  They pay 30% over spot price for the seed versus North American brokers in CAD.  The Chinese brokers were poking around Ontario around three years ago, they made their presentation explaining how it was important to give options in trade.  I took them up on the offer along with other guys around here, I don't think we've sold a single piece of corn in the area unless it was grown in our own personal veggie patches.

We now have Indian brokers doing the same thing.

If anyone thinks the commodity board is representative of reality on the cost of food is going to incredibly surprised when there are companies underwriting derivatives on food that will never be delivered.

The JPM's of the world might think they are in the zone of control, but when their plate is empty at breakfast lunch and dinner because the Indian and Chinese government's understand that they have to feed their population.


Contractually the offering is conditional on yields and a sliding scale.  Since everyone in this area has been seeing a slow crop loss that amounts to around 20-30% over the last ten years because of environmental conditions (warm too soon, not enough rain, cold snaps in July, etc).  It increases the cost of the goods.

It's not the huge btw.  Silver and Gold is money, real money.  And when it was offered two years ago, I pretty much knew the writing was on the wall for North America in general.

To give you an idea of the numbers I'm talking about.  Regular spot market price for corn per bushel is 6.70, I get 7.90 from the Chinese and it was paid in silver last October after curing the corn.  Year before I got 5.34 a bushel, again paid in silver.  I can get 80 bushels of corn out of an acre now, I used to average a yield of 115  bushels of corn in 2001.  With 200 acres running this year in a regular land rotation process, I'm estimating the spot price around 8.10 CAD per bushel paid in silver or gold at the end of the summer.  In real terms of capital value, the 120k I was paid in silver has kept it's value in terms of my buying power.

You have to understand something about food.  It's ready when it's ready.  And there is less of it, it costs more for people to eat.  At this point in time, when I'm selling seeds to make more food, I'm not taking paper anymore because the Chinese and the Indians are offering an option. Nor are any of the other guys that make food for your living and theirs.  We take shiny metals like gold and silver because the option is available.

goldsaver's picture

CPL, I will assume you are not a lying troll making up a story. This is fascinating to me. Chinese dealers are paying you in silver for your grain? Do you have a silver price for the grain or is it based on CND rates? Did the Chinese offer to pay you in silver or did they accept your demand that they do so? Do you know of any other grain exporters getting paid in Au/AG ? How do you deal with tax issues? Report the value of the silver in CND or oare they paying in maples (face value)? This could be a very interesting unreported development.

CPL's picture

Taxes?  I'm trading one commodity for another at market value, no "profit" is generated because silver and gold is not a "currency" as far as the law is concerned.  It is the opposite of currency, it has value.  The end tally is "0" when looking at the books.  I wasn't "paid", I traded fair and square as far as the law is concerned.

When I exchange the silver for money however the capital gain is then recognized.  I eventually have to exchange the silver for cash for things like wood for the furnace, gas for the car, hay for horses, clothes, etc.

Trick is like anything else to do with capital management, don't cash it all and spend like a pauper.

A Nanny Moose's picture

I eventually have to exchange the silver for cash for things like wood for the furnace, gas for the car, hay for horses, clothes, etc.


I wonder if you might be trading with the wrong people. Surely there are those who will trade for silver?

Jonathan North's picture

I found the same problem.  In the long term I want to hold physical silver.  But in the short term the dollar has not yet collapsed and it is still the generally accepted medium of exchange.  My silver hoard has been quietly appreciating for the last 15 months as the dollar weakens.  But to get by I am forced to trade small amounts of silver for CURRENCY. Because currency is what is current, that's why they call it currency.  I have absolutely not faith in the fiat money the government is currently printing. 

nkktwotwozero's picture

Pretty sure that falls under 'barter' which IRS asks (politely) to report as 1099-B.


Brought to you by Carl's Jr.

chumbawamba's picture

Thus concludes this episode of Contradictory Contrarian Cuntflap.

I am Chumbawamba.

KickIce's picture

imo, we're looking at a little bit different situation.  Not only inflation but actual shortages as well.

LawsofPhysics's picture

Ah yes, peak "everything"

ColonelCooper's picture

Dude.  I am as big of a Beans, Bullets and BandAids guy as anybody here, but how about you go write a letter to SurvivalBlog, or post at ARF. 

You are commenting about a post submitted by a dude who runs PM's for a living.  Did you honestly expect him to say you should sell your metal and go long #10 cans and lead?

Topics at ZH cover just about everything, but try to at least have a decent segue if you want to hijack a thread.

No junk from me BTW, but you are approaching Doucheville.

william the bastard's picture

Are you saying Sprott has a bias?


ColonelCooper's picture

No, Dipshit.  I'm saying that when you read something written by a guy who runs metal funds, you are rather dimwitted to expect him to write about how to remodel a kitchen.

And yes Troll, of course he wants you to buy his funds.  Don't put words in my mouth because you are trying to make a point that is already pretty fucking obvious.   


william the bastard's picture

The only point you have is your head.

ColonelCooper's picture

You really aren't getting any better at this.  Don't you have something to cut n paste somewhere?

william the bastard's picture

Hey, I cut and pasted this from the article:

"Even Jim Cramer has acknowledged the current shortage in minted US gold coins"

ColonelCooper's picture

Okay, that's funny.  If you could have worked in something about not being able to eat it, and maybe a little something about a bubble, it would have been first class trolling.

Bay of Pigs's picture

Billy the Gold Douche never gets tired of being thoroughly bitch slapped by the Good Col...

LMAO. Yeah, Eric Sprott is a real dummy isn't he? Only a billionaire you fucktard.

tmosley's picture

The drive by troll strikes again!

ColonelCooper's picture

Operator: Troll help line, what is the nature of your call?

William: I really need some help, this pasting isn't working out the way they said it would.

Operator: Name and I.D. Sir?

William:  William, # 2376

Operator: Please hold while I transfer you

Elevator music..........

Troll Tutor: William, buddy.  What's going on?

William: These guys keep coming up with like facts and charts and stuff.  Everything you put on the paste list is just making me look like,,,like,, an asshole.  They're calling me things like Troll and Dipshit, and everything I do is going south.  Nothing works; I think these guys might actually be, buhbuh be,,,,right?

Troll Tutor:  Calm down William.  What site are you working?

William: Zero Hedge, Sir.

Troll Tutor:  Dammit William!  You're working off the advanced list!  Fool! You've only been at this for a few weeks.  I TOLD you to stay on the Yahoo Finance and Yahoo Answers for SIX GODDAMN months! THEN, if things were working out, you go to WSJ.  How did you even get the advanced list yet?

William:  It was stuck to the back of my handout booklet.  I'm sorry, I didn't know.  I really didn't know.

Troll Tutor:  Log out William.  I need to send somebody over there to repair the damage you've done.  YOU, I want to report to the training center next week.  You're going to redo your orientation before I pay you to paste on ONE MORE THREAD!  Dammit.

William: Yessir, sorry Sir.  Please give me another chance.  My mom said that if I couldn't keep this job I was going to have to momve out of the basement.  Please Sir?

Dial Tone..............................

Hephasteus's picture

But sir. You said sword sharpens sword. Why won't I sharpen. Hmm. Why won't I sharpen?


DoChenRollingBearing's picture


Colonel, you sir, are a Troll Terminator par excellence!

KickIce's picture

My bad, I was actually referring to food so I'm in agreement that having food on hand is a good idea.

CynicLaureate's picture

Can't eat gold or silver?

I'll sell you a mature breeding cow for one troy ounce of gold, or a nice heifer for 15 troy ounces of silver (FOB Austin, TX).  Already sold the steers this year.

Related chart:$gold:$djalc

(note that the $DJALC index tracks the price per hundred pounds of live cow, so a ratio value of 18 means that one ounce of gold buys an 1,800 pound cow)

Dr. Sandi's picture

Holy sheep shit, Cowboy. That's an intriguing chart you're just exposed us to. Thanks.

My brain's gotta chew on it a little, but it's something subtle yet quite important to know. I also clicked on the historic chart. Looks like rhe REAL price of beef's going up faster than gold over the past couple of years if I read that bad boy right.


ColonelCooper's picture

Feed, Feed, and Feed.  Now I'm no farmer, just live in farm country, (and negotiate a lot of crop damage from utility easements) but what I'm seeing is every available INCH of tillable going into corn.  When it's selling for six bucks a bushel, it gets expensive to shove it down Bessie's cud. 

buzlightening's picture

Yep! A medium of exchange comes to the rescue when paper fiats blowing in the gutter!!  Honest money gold/silver!! The track record speaks for itself and  even jpig morgue wants collateral in gold!! It's truth as money goes marching on!! A timeless medium of exchange!!

monkeys.pick.bottoms's picture

You may want to take into account an exchange rate of gold and grain in an environment plagued by food shortage.

nuinut's picture

Fekete said:


The overwhelming majority of working economists don’t see that gold still plays an indispensable role in the credit system. The U.S. Treasury bond market has a sine qua non adjunct in the gold futures market. Without it bonds would be irredeemable: they would be promises maturing into more promises. But once permanent gold backwardation strikes, the prop of gold futures is removed, and the U.S. Treasury bond market will succumb to the sudden death syndrome. For the time being it is supported by speculative demand, but the demise of the gold futures market will make the bond speculators scurry for cover.
As long as confidence in the monetary system is unimpaired, gold will be widely available and the credit system will work properly. Increasing unavailability of gold indicates the threat of a breakdown of the credit system. Gold is going into hiding. Watch for the day when it will not be for sale at any price. When this happens, the credit system and along with it trade will collapse. It is not a matter of equilibrium or the lack of it. It is a matter of life or sudden death.

The debt based system cannot exist without available gold.

How long are most people gonna eat without that?

Jason T's picture

am long growing a garden and raising chickens.

seriously, when food prices go up enough, there will be a boom in home gardening and chicken raising.  


bankrupt JPM buy silver's picture

you go chickens, I'll go silver, we'll both win

DosZap's picture

Ha, if you think the .guv fkrs are going to allow you to be self sustaining, and grow food, and raise chickens, livestock, dream on.

They will stomp you.

YOU WILL be a ADM slave, if you want to eat.

Nostradumbass's picture

"Ha, if you think the .guv fkrs are going to allow you to be self sustaining, and grow food, and raise chickens, livestock, dream on.

They will stomp you.

YOU WILL be a ADM slave, if you want to eat."


I have given this a little thought and it would, to me, be at this point when the mass of lazy, ignorant Americans awaken and FINALLY get into the streets...I wouldn't worry too much about the gov. trying to control your personal veggie and chicken farm...

Dr. Sandi's picture

I'm slowly rising off my lazy ass and joining the "Feed yourself and live" movement.

Despite the fact that our 1/4 acre subdivision paradise has land about as fertile as the plains of Mars, I know that our little city, like many, will let us keep 3 hens, no roosters.

This soil is crap, so I was very excited to find out about growing potatoes in a bag. I can DO this:

They say if you do it right, you can get about 10 pounds of new potatoes for every pound of seed potatoes you plant. And as nice as tomatoes and endive are, the average 'merican eats 125 pounds of taters a year. I think we're going to need more spuds than tomatoes to get through a "long emergency."

And as much as I love the care and selection I see in the catalog of Territorial Seed of Cottage Grove, OR:

they're damnably expensive for people with no traceable income.

I found a much less flashy outfit back in my motherland at Zeeland, MI, with much cheaper seed prices:

I've always trusted people who wear wooden shoes. (Just don't start talking religion or politics.)

I haven't done business with either outfit. Territorial has an excellent rep. But since I be a crazy, take a risk type, I'm about to order seed stock from the Zeelanders and get me a few bags of taters growing out on the south side of the homesead. And maybe some carrots where the tomatoes were last year.

And yeah, tomatoes again too. We always grow tomatoes, even when we have a lousy growing year like 2010 was.

We haven't bitten the bullet and gotten the hens yet though. Dealing with hens is a lifestyle change, and we're not out of work... YET!

We're not close to self-sustaining here, but if we don't start to learn now, we might have to learn under the gun, which is a lot less fun.


Lndmvr's picture

In the depression, wifes grandpa feed the hobos coming up grom the tracks potatoes and onions for a little work around the farm. Butter, eggs, onions and potatoes make damn fine eating. .Gov has a law about tracking chickens when they die now. Been buying large bottles of olive oil for frying as it keeps better than butter.

Absinthe Minded's picture

Lndmvr, you read my mind. All those veggies don't do well when they're stuck to a pan. Olive oil is a great ace in the hole. How much olive oil is going to be shipped over seas when TSHTF? If you can buy it in 5 gal. drums, do it! Great for flavoring too. I stocked up on veggie oil too, good for pancakes.Drizzle it on french bread and bake, delicious. I'm getting hungry.

Bringin It's picture

Nice Dr. Sandi.  Remember to order heirloom seeds so that you won't need to reorder next year.

Fish ponds are good too.