Massive Raw Gold Shortage In China - Supply And Demand Crunch Looms

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Tue, 03/29/2011 - 08:33 | 1112134 Rektors
Rektors's picture

First time post...

Tue, 03/29/2011 - 10:42 | 1112665 Tapeworm
Tapeworm's picture

They are only a thousand times too high in their quatities mentioned.

kilo not tonne

Tue, 03/29/2011 - 11:17 | 1112819 cowdiddly
cowdiddly's picture

Thats what caught my eye too. I don't think total world production is that much (I think  TWP issomewhere between 2400-4000 tons).That would definately make FT Knox supposed 8000 tons pitiful) If only it was that plentiful. The reporters have been missing a lot of decimal places lately.

Tue, 03/29/2011 - 11:58 | 1113013 Harlequin001
Harlequin001's picture

So what's gold really worth then?

Any ideas...

Tue, 03/29/2011 - 12:42 | 1113111 cowdiddly
cowdiddly's picture

In this market I have no idea. I do know that South Africas break even production cost is about $750 an ounce and are part of the gold suppression by the central banks. With that said I could call a bottom of about 800( PMs are not like paper and will always be worth something) bucks although there are some lower cost producers. At these prices gold could correct hard but I just do not see it with worldwide demand what it is. The only thing these idiots are doing by controling the price is allowing other countries like Iran, Russia, The Netherlands and China to add reserves on the cheap. If it ever breaks free of central bank control look out the sky is the limit but this is one of the most controlled market on the planet so its not real likely. They want you to put your money in their scam Ponzi system of stocks,bonds, banks and deposits so they can keep inflating and using your money for Corporate and Central bank benefit.. Buying gold is like a Giant Fuck YOU. They hate it because you are storing your weath and production in a form they cannot use.  Because its an alternative form of money It keeps the sorry assed central bankstas and politicians in check. Just listen to CNBC trot out and talk about a gold crash every time it goes down 1%. A least China has the decency to tell there population to buy gold, but their motives are not pure. They are desperately wanting to replace the worlds reserve currency with their own and are trying to break the western worlds grip. All our politicians seem to want to do is help them with the endeavor.

Tue, 03/29/2011 - 14:23 | 1113600 Harlequin001
Harlequin001's picture

cowdiddly I agree, but my question was what is it really worth, not what is its price...

If we can gauge what it's worth then we can gauge when to sell, regardless of its current or intermediate price.

I don't plan to sell until gold is back in money, though I believe that when the money printing is finally over it will be multiples of its current price, for reasons I state below...

But I hear what you're saying...

Tue, 03/29/2011 - 08:37 | 1112137 Oh regional Indian
Oh regional Indian's picture

The gold Bull run is almost over. it will go the way of the dis-eased sun.

Midas's curse. I don't believe the China stories anymore.

Set-up for a fall.

ORI

http://aadivaahan.wordpress.com/2011/03/28/for-dis-believers/

Tue, 03/29/2011 - 08:38 | 1112147 Ray1968
Ray1968's picture

I'm a mega-bull with the PM's but I'm really nervous when everyone is calling for huge gains in the metals. Just nervous. I wish they'd change the channel back to iPads and Netflix.

Tue, 03/29/2011 - 08:48 | 1112171 umop episdn
umop episdn's picture

Don't worry. All 'fiat' currencies die, and the present ones will be no exception. The PM bull market will end when PM's are used as money.

Gold may have the headlines, but Silver has the numbers!

Tue, 03/29/2011 - 10:37 | 1112658 clymer
clymer's picture

There can be no such thing as a gold bubble. It is the arbiter of currency. It is money. Reverse your thinking - the bubble is in fiat. This should be obvious by now.

Tue, 03/29/2011 - 13:07 | 1113194 Harlequin001
Harlequin001's picture

It's a big one but I just couldn't help myself, as the actress said to the bishop...

'Fractional reserve money systems do not necessarily manifest themselves as a consequence of fiat based financial systems. When you save your money on deposit at the bank and the bank loans it out as a 25 year mortgage there is no way the bank can grant you instant access to your money simply because it doesn’t have the cash, only the security. Excessive withdrawals of deposits historically have always resulted in the forced sale of assets at fire sale prices to raise the cash needed to pay the withdrawals i.e. a classic bank run.

To counter this banks make an assessment of likely withdrawals over any given period and keep this sum on hand as reserves. If this assessment was say 10% of deposits then this would be the reserve requirement. This is a fractional reserve system and it exists with any business which promises long term investment with access to capital. The problem with a fractional reserve system under a gold standard is liquidity because the bank does have sufficient assets to cover the withdrawals but it can’t necessarily liquidate them quickly at fair market rates. The problem here is liquidity; it is entirely different under a gold standard than a fiat system.

For the purposes of this discussion we'll assume that 1oz of gold can be bought for $10.

Under a gold standard banks must collect money from savers which they can then lend for greater interest. With a reserve requirement of 10% as an example, for every $10 of deposits the bank can make loans of $9 whereas under a fiat system the bank can make loans of up to $90 and still comply with its reserve requirements.

You can see the problem. As soon as the bank makes a loan of $90 and that check is paid in to a receiving bank, the receiving bank will immediately demand payment of the check from the issuing bank so that it can itself make payments on its own account. The issuing bank in this case however has only $10 on deposit with which to make payment and is immediately insolvent. Time for TARP, QE2, 3, 4, 5, 6 and onward to ultimate failure...

Under a gold standard banks need to maintain accurate valuations of these assets on their books for their own well being in case they need to be liquidated. There is a constant and ongoing process of price discovery. Under a fiat system in which we have central banks capable of creating any quantity of new money, excessive withdrawals no longer require a forced sale or even a sale at all since these securities can now be used as collateral at any agreed price with a central bank that can simply create any quantity of money with which to buy it.

The result can only be a system which encourages excessively high valuations of securities classed as ‘held to maturity’ at prices intentionally designed by government to be fake. A government has no choice if it is to protect and promote its banking system. That’s what ‘mark to model’ pricing is; a governments' gift to its banking system to enable it to remain solvent so that it can ultimately sell it more debt.

Any system without real price discovery can only result in these securities being held at increasingly fraudulent and unrealistically high valuations by banks for years under the glaring gaze of regulators who are supposed to prevent it. That’s what subprime was. That’s how they make their bonuses.

What’s worse is that using our example, the receiving bank now has $90 of deposits on its books and can now make loans of up to $810 yet still comply with reserve requirements. It too will become insolvent when the checks are ultimately presented for payment requiring another bailout of this bank too.

Even Mb, the so called measure of the monetary base is not now indicative of the real value of real money because using our model, $90 of what is effectively bank deposits which are effectively counted as money, and everything bought with it still has a value of only 1 gold ounce.

This is what drives property prices higher through the increasing availability of bank credit. The problem is that we still only have $10 of savings in the form of deposits to fund it. It doesn’t matter what you call it or how frequently governments’ bailout the banking system, the problem must inevitably arise again and again as the bailouts become larger (and by multiples) and more frequent as a direct consequence of mathematics, not magic, bad luck or mismanagement. The gold price is not going down.

It is a mathematical fact that the first time banks incur losses or withdrawals someone needs (using our example) to find $800 for every $10 in deposits. That is a truly staggering quantity of currency required to be produced to keep the system of bank credit going. It should give you some idea of the extent of the inevitable contraction in credit and the losses that are yet to be incurred on residential and commercial property markets that rely on this system for funding.

We'd like to be clear. When we say $10 we mean $10 in real money. That (in this example) is 1 oz of gold priced at $10, not the massive quantities of cash currently being printed. This is the relationship of bank credit to real money. All the assets bought with our $800 of bank credit are actually worth only $10 in real money despite the valuations placed on them by banks.

As we've said before, when you need more real money because you can't sell your assets for what you say they are worth they are not worth what you say they are. This is the reality of a liquidity crunch. These assets are not worth what the banks say they are in terms of currency, never mind real money.

Whilst Bernanke et al might try to minimise these losses to the banks by printing and devaluing money they cannot alter their real value which is 1 oz of gold at whatever price in currency; they can only succeed in lowering the value of cash in terms of real money which is a problem for the masses who receive payment for their labour in cash.

Even if Bernanke et al were to print 5 times as much money so as to increase the perceived value of our $800 of bank credit to $50 in cash that $50 is still only worth 1 oz of gold. That’s what a gold standard is, the revaluation of everything in real money, not the explosive quantities of cash currently being printed.

It is the revaluation of assets in the real money which underpins the cash, and for 5,000 years that real money has been gold.

This is the reason why we say that the supply of cash absolutely MUST increase and that every option MUST be exhausted by government before bond markets are allowed to default. It is the reason why the discount window at the Fed exists in the first place, why its dealings remain a closely guarded secret and why we now need a taxpayer funded guarantee of bank deposits just to keep the system going. It is the reason why neither TARP, QE2, QE3, 4, 5 or even 26 can possibly resolve it and we say that there is zero possibility of any sustainable economic recovery being built atop it. Simple maths dictates that it just isn’t possible. '

It is not gold that is in a bubble...

Tue, 03/29/2011 - 23:37 | 1115694 StychoKiller
StychoKiller's picture

Government is constantly trying to find a way to have unlimited creation of currency (Euros, FRNs [Federal Reserve Notes]) and credit without inflation, unlimited spending and deficits without economic ruin, unlimited national debt
without repayment, and unlimited growth of power and plunder (regulation and taxation) without revolt.

They can no more halve things and get the sensual good, by itself, than we can get an inside that shall have no outside, or a light without a shadow.

No one will see the logic of what you've posted as long as their paycheck(s) depend on NOT seeing it.

Tue, 03/29/2011 - 09:48 | 1112399 DeadFred
DeadFred's picture

Cheer up there are just as many calling the double top.  Don't know which way this goes but I lose if it doesn't go up big.  It will be educational to see.  Was expecting a rise between Mar expiry and the end-of-month but I see I completely forgot about quarterlies.  The good part about ignorance is if you collect enough of it you get back to coin flipping odds which is better than being a sheep following the voice of the shearer. lol

Tue, 03/29/2011 - 15:12 | 1113801 trav7777
trav7777's picture

this is like the 3rd or 4th double top?  Some were calling the "triple top" the last time.

The way I figure if the chinese want to buy, who's gonna sell?  The paper markets aren't actually backed by equivalent ounces and the chinese are buying the physical.

If the demand is there, the demand is there.  Doesn't seem like demand has crashed when price plunged lately.

Tue, 03/29/2011 - 08:41 | 1112151 Harlequin001
Harlequin001's picture

'It is infinitesimal when compared to the $4,000 billion a day traded in currency markets.

So a re-balance of paper markets to something of value has a long (reverse infinitesimal) way to go then.

I'm buying...

Tue, 03/29/2011 - 08:44 | 1112163 redstuffer
redstuffer's picture

      That's what makes the market so interesting. You should short the gold trade and reap the benefits of perfect market timing.

Tue, 03/29/2011 - 11:56 | 1113003 Harlequin001
Harlequin001's picture

redstuffer that's good until someone defaults on your position, which is the ultimate end game for this market. How long it takes I have no idea in a manipulated market but when all went mildly pear shaped in August 2007 we were happy that we were holding physical at that time.

Without Goldmans $13 billion TARP bailout, (or was it $30B) there would certainly have been uproar in derivatives positions. Better safe than sorry I say, I can fore go the intermittent gains because I'm contented with the long term appreciation...

Tue, 03/29/2011 - 08:54 | 1112188 eigenvalue
eigenvalue's picture

I'm in Shanghai at the moment. I can tell you that the story is 100% correct. Some dealers even tell me that I have to wait for 3 months to have my gold bars delivered. However, silver bars seem quite available here.

Tue, 03/29/2011 - 13:51 | 1113460 h3m1ngw4y
h3m1ngw4y's picture

did you really watch the video? its not about shortage we all agree on that its about the 50k tonnes which seem out of tune

Tue, 03/29/2011 - 09:05 | 1112227 Withdrawn Sanction
Withdrawn Sanction's picture

Midas's curse. I don't believe the China stories anymore.

You may be right, ORI.  Even to a PM bull, this story smells fishy.  For example, I was always under the impression silver (moon metal) was the preferred PM in China both historically and culturally.  I could be wrong, but that was my impression.

Tue, 03/29/2011 - 09:44 | 1112379 Oh regional Indian
Oh regional Indian's picture

Exactly Withdrawn. India was the traditional gold-bedazzled nation. Sol worshipping. China had a lunar calendar, lunar cycles, lunar worshipping.

Plus, in dark times, the moon shines bright while the sun is hidden.

I do believe we are entering the night here, figuratively.

ORI

Tue, 03/29/2011 - 12:26 | 1113149 DosZap
DosZap's picture

What WAS, is no longer.

The Chi Coms are begging their people to buy both.

The people who cannot afford gold, are buying silver.

Same in India,bukoos.

China wants at least a 10% Reserve(publically), their current holdings are a long way off the published figure.

Only GOD knows how much they have already over and above it.

Tue, 03/29/2011 - 09:26 | 1112310 Old. No. 7
Old. No. 7's picture

Sure Dude. What do you call a Chinaman with $900k American?

Gold Buyer

Tue, 03/29/2011 - 09:32 | 1112325 High Plains Drifter
High Plains Drifter's picture

on just a side note. i saw this a couple of days ago. any comment by you on this? i was amazed when i read it...wow!!!

http://tinyurl.com/6yq97bx

so i guess gandhi was catching and not pitching?

Tue, 03/29/2011 - 09:48 | 1112406 Oh regional Indian
Oh regional Indian's picture

Indeed HPD, I posted abotu just yesterday, soon as I saw the story.

Ganshi was just another inflated icon, a useful tool for the british.

His demi-god status is entirely un-warrented, not because he swung both ways or not at all. He was just an enabler for divide and conquer, is all. A patsy.

ORI

Tue, 03/29/2011 - 11:13 | 1112816 rune420
rune420's picture

China is still outsmarting the west. They see the structural flaws in the fiat system and are simply trying to take control over as many raw materials and grow as much infrastructure as they can while the game is still on. If that includes building "ghost towns" to keep their industry active then so be it.

Tue, 03/29/2011 - 11:35 | 1112869 ZapBranigan
ZapBranigan's picture

Wow, ORI, it seems you never tire of always being wrong.  Glutton for punishment?

Tue, 03/29/2011 - 11:25 | 1112877 ZapBranigan
ZapBranigan's picture

Don't listen to ORI, if anything, use him as a contrarian indicator.  Track his posts, he's made tons of 'predictions' (including dates) all of which have failed miserably.  When he has been called-out on them in the past, he tries to blame someone else.  He's a douche-sack and he just likes to make controversial statements on ZH to push his website.  Disregard him completely.

Tue, 03/29/2011 - 23:40 | 1115708 StychoKiller
StychoKiller's picture

"It's hard to make predictions, especially about the future."  -- Yogi Berra

Tue, 03/29/2011 - 08:37 | 1112138 Spalding_Smailes
Spalding_Smailes's picture


Can we get an update on why Gold is in the dumpster with all the black swans overhead. Turd must be pulling his hair out ....

It should be over $1,500 with Japan printing, EU issues, Stealth • QE 7, Muammar Muhammad al-Gaddafi, Plutonium samples, Debt ceiling issues, Shortages, Fannie Mae, Housing market, Ben Bernack can't raise rates, Hamas • Israel issues, Bank of England gold lease issues, Jobs outlook, Portugal ........ And the new China gold shortages ......

Tue, 03/29/2011 - 08:39 | 1112143 cossack55
cossack55's picture

You forgot Elenin.

Tue, 03/29/2011 - 08:43 | 1112161 Spalding_Smailes
Spalding_Smailes's picture

It's funny listening to gold sellers speak about shortages or the doomer outlook from the gold websites ....

Tue, 03/29/2011 - 12:46 | 1113215 JonNadler
JonNadler's picture

you're right smelly, we got plenty of gold to sell here at Kitco. We are not selling it though, we're waiting for it to go back to 200

Tue, 03/29/2011 - 12:46 | 1113217 JonNadler
JonNadler's picture

you're right smelly, we got plenty of gold to sell here at Kitco. We are not selling it though, we're waiting for it to go back to 200

Tue, 03/29/2011 - 08:43 | 1112154 Harlequin001
Harlequin001's picture

It's called derivatives...

Tue, 03/29/2011 - 08:49 | 1112167 Spalding_Smailes
Spalding_Smailes's picture

Then why this stupid call from a blog • gold pro ........ ? Hes been trading futures / options for years he knows about the derivatives he cry's about them after every bad call , over and over and over like a broken 45 '

 

............... So, here's my promise to you. Gold will trade at $1600 on or before 6/10/11. If I'm wrong, I'm shutting down this blog and going away, never to be heard from again as I will have proven myself to be of little value. If I'm right...well, let's just say it would be perfectly appropriate for you to hit the "Feed The Turd" button every day for the rest of your life. " ............................

Tue, 03/29/2011 - 08:52 | 1112180 Harlequin001
Harlequin001's picture

and what does that have to do with me Spalding?

Tue, 03/29/2011 - 08:53 | 1112186 Spalding_Smailes
Spalding_Smailes's picture

Just answered your questions. The derivative issues have been around, used for years ....

Tue, 03/29/2011 - 09:01 | 1112213 Harlequin001
Harlequin001's picture

I refer you to my response to a recent article on interest rates and gold.

'This idea that gold prices are linked to interest rates is complete and utter bollocks. The gold price was rising in 1971 because the US had already been printing too many dollars, even under a gold standard. Most CB 's at the time were sending their export dollars back to the Fed almost immediately apart from the French, who had been stockpiling for some time.

When De Gaulle attempted to exchange his stockpile of dollars for gold Nixon shut the window. At that time the world was effectively saying' show us your gold backing' which had Nixon got he would have shown because as we all know, no politician can resist a political edge if its free, and doing so would most certainly have calmed the worlds fears about inadequate gold backing of dollars.

We can only deduce from this that the US didn't have sufficient gold to back its dollars, and that's as far back as 1971...

It matters not that interest rates rose upto 1980, the only reason the gold price collapsed subsequently was because of the introduction of the Washington Agreement which effectively released every CB from the need to convert foreign currency (read export dollars) to gold. Now they convert export dollars to a US T Bill or Euro bond etc so there is no demand for gold or sale of dollars. It was this collapse in demand from CB's which led to a collapse in gold prices as they became net sellers instead of buyers.

It was entirely a short term manipulation which is now over.

The Asian currency pegs created an artificial strong dollar economy in which wages didn't increase as they should which in turn resulted in credit based asset bubbles as the US Govt tried to make Americans wealthy through asset appreciation instead of net earnings. The only consequence was that Americans eventually 'spent up' using too much of a static take home pay to service mortgages and credit card debt. At that point the dollar began to fall because Greenspan/Bernanke knew that the only way they could replay the same game was for Americans to earn more money and take on more debt. That means lower dollars and higher inflation in a world geared up for inflexible exchange rates and exports to an economy gone bang. Lowering interest rates has got nothing to do with rising gold. If it did we would all have some and clearly we don't.

The gold price is rising because more people are concerned about the value of their money. We will soon see an environment where interest rates are rising in conjunction with the rising gold price.

The fact is that gold prices dictate interest rates, not the converse, because when gold is in money I don't need to invest or save it in banks. I can choose to do nothing, which means that the banks have to tempt me with yield to get me to give it up. I am everyone, I am Joe Public the world over.

Interest rates are entirely false. The introduction of the Washington Agreement should be recorded in history as the greatest manipulation of financial and commodity markets ever by anyone and anything. That manipulation must now be taken out, which means higher rates, higher gold, lower housing, less credit and higher food.

An absolute disaster by any means that was  entirely avoidable, thanks Greenspan & Bernanke et al for nothing. We would have been and will be better off without you.

'Watch for signs that the second great gold bull market in history is about to begin.'

Hmmm.. Well done Lear Capital, you're about 10 years late with that one...'

Strikes me Spalding that you haven't answered much at all...

Tue, 03/29/2011 - 09:38 | 1112360 High Plains Drifter
High Plains Drifter's picture

Hasn't he got some furniture to deliver or some books to read or something? 

Tue, 03/29/2011 - 10:08 | 1112500 GoinFawr
GoinFawr's picture

Truths get in SS' hostile little face Harlequin; he's got no time for them.

Tue, 03/29/2011 - 10:28 | 1112591 Harlequin001
Harlequin001's picture

I was kinda hoping to engage in some intelligent debate, but there you go...

as go all paper bulls...

back to the inane one liners, if you can call them that...

Tue, 03/29/2011 - 08:57 | 1112208 tmosley
tmosley's picture

Do you cry yourself to sleep at night because no-one likes you?  Is that why you feel the need to attack people who ARE liked?

Also, can you tell the difference between March and June?  Is your inability to read or think critically the reason you are a delivery driver?

Tue, 03/29/2011 - 09:16 | 1112234 Spalding_Smailes
Spalding_Smailes's picture

How bout this gold pimp ....

 

If turds call is good I'll never post again, if hes wrong you leave with him, he also said he would stop posting on ZH if he was wrong.... ?

 

Got ballz ?

 

PIN DROP

Tue, 03/29/2011 - 09:44 | 1112387 Temporis
Temporis's picture

How about you just shut the fuck up... period.

 

Tue, 03/29/2011 - 09:51 | 1112412 Spalding_Smailes
Spalding_Smailes's picture

Nope. 

Must battle the doomer sect .... Can't let the misinformation get out of hand, if Turd didn't spam ZH for months with his blog links ( searching for fiat returns ) I would never post about his hypocrisy, but since he did, it's open season on his snake oil ....

Tue, 03/29/2011 - 13:03 | 1113279 JonNadler
JonNadler's picture

Thanks for not posting about my hypocrisy smelly

Tue, 03/29/2011 - 13:03 | 1113280 JonNadler
JonNadler's picture

Thanks for not posting about my hypocrisy smelly

Tue, 03/29/2011 - 14:34 | 1113648 tmosley
tmosley's picture

Nope, I've already made my commitment to leave.  If physical silver is ever available for less than $20 an ounce ex shipping, then I will leave.  At least, until it is selling for, say $100/oz.

I don't know that gold will hit Turd's target.  He made the call, not me.  I do know that silver will go much higher.  I don't know how high, or when, but that is my bet.

Tue, 03/29/2011 - 08:45 | 1112168 Robot Traders Mom
Robot Traders Mom's picture

What is gold up in the last year? The last 10 years?

How exactly is it in the dumpster?

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