10 Things You Didn't Know About Gold

Tyler Durden's picture

With gold and silver down this morning - following a mysterious vertical plunge last night (once again) - we thought ConvergEx's Nick Colas' timely discussion of gold was worthwhile. As he notes, Gold is the ultimate personality test for investors.  Some hate it, excoriating its adherents for their lack of faith in human ingenuity – gold has been valuable since before humans could write. And some swear by the yellow metal, in the belief that it is the last vestige of rationality in a world of financial assets manipulated by central banks and opaque trading venues.  What gets lost in the wash is that gold is a commodity and can be analyzed as such. On that basis, here is the 'Top 10' list of real-world fundamentals for gold.

 

Via Nick Colas and Sarah Millar of ConvergEx,

If you haven’t caught onto the show already, I highly suggest sitting down one night for the National Geographic Channel’s “Doomsday Preppers”. A documentary-style reality TV series shot right here in the US of A, Doomsday Preppers just began its second season following a variety of survivalists preparing for the end of civilization as they know it. From Chris Nyerges in California who prepares to live in the jungle after a massive earthquake to Bruce Beach, who runs drills to prepare his family for nuclear warfare, the show can be quite a hoot. To touch a little closer to home, consider Season One’s Pat Brabble and Doug Huffman: the first, a religious Southern gentleman, believes the world is on the brink of hyperinflation. To prepare, he stocks a room with guns, ammo, and alcohol; not to use, mind you, but to sell. Huffman, on the other hand, has dug holes into the Sierra Nevada Mountains in anticipation of a second Great Depression – he’s stashed away the essentials for survival should the US break into chaos.

My personal favorite “Doomsday Prepper”, though, has yet to appear on the showthe apocalyptic gold buyer. It seems everyone knows one of these guys/gals nowadays, what with the lurking fiscal cliff and continuing worries of an economic slowdown. They warn of inflation, tightening gold supply and growing demand, political risk, you name it. Their solution? Buy gold. Buy as much as you can. Even at $1,700/oz., they say, it’s a bargain when you consider the insurance it provides you.

While I have to agree that gold will be a valuable asset to hold in 2013, I find it hard to sympathize the “end of the world as we know it” logic that drives some to buy. I am not a believer in the world-is-coming-to-an-end mentality, fiscal cliff and Mayan apocalypse or not. And based on the facts we’ve found listed below, it looks like some of the more ominous warnings from the fearful gold buyers are reminiscent of those characters from NGC’s show. Better to know the facts before you buy. So without further ado, we present our “10 Things You (Probably) Didn’t Know About Gold”. These interesting data points come from a variety of sources, including the World Gold Council, bullion firms, the US Geological Society, and mises.org.

1.  India is the largest consumer of gold in the world, but Greater China (including China, Hong Kong, and Taiwan) is slowly creeping up on the long-time leader. In Q3 of 2012, according to the World Gold Council, India’s consumer demand was 223.1 tons, while Greater China reached 185.1. This now 38 ton gap (fueled largely by greater jewelry demand in Greater China) has narrowed 71% since Q3 of 1997. For Q3 2012, India represented 30% of global consumer demand, while Greater China was 25%. Hong Kong is home to the highest gold consumption per capita in the world: with total consumer demand of 6.4 tons in just the third quarter, there are about 0.03 ounces (or, at today’s prices, about $50 in gold) for each person in the SAR.  

 

Bottom Line: Gold is, at least partially, an emerging markets play.

 

2.  On the production side, South Africa has been ousted as the once gold-mine capital of the world: now China and Australia are the leaders on that front, having produced 335 and 270 tons in Q3 2012, respectively. Interestingly, though, China is still a net importer. However, the singular most productive gold mine in the world wasn’t even in either of those countries: it’s the Grasberg Gold Mine in Papua, which produced more than 63 tons (2 million ounces) in 2011. Uzbekistan holds the next largest, Maruntau Gold Mine, which pushed out 56.3 tons (1.8 million ounces).

 

Bottom line: Gold is one of those rare products that China actually imports.

 

3.  The IMF has the third largest gold reserves in the world, with 2,814.1 tons. That’s more than India (557.7), the Netherlands (612.5), Japan (765.2), China (1,054.1), and France (2,435.4). If the SPDR GLD ETF was including in the count, it would come fifth in the world with 1,289.8 tons. As many might know, the US has the highest total gold reserves both absolutely (8,333.3 tons) and as a percentage of total foreign reserves (75.4%). 25% of the world’s gold is also located right here in the US at the Federal Reserve Bank of New York – 540,000 gold bars – though most of it belongs to foreign governments.

 

Bottom line: Even central banks still see the value in having stores of gold.

 

4.  Though jewelry has traditionally been the more popular end use of consumer demand for gold, making up 78.5% of the total in 2002, in Q3 2012 jewelry made up 59.9% while investment (coins, bars) accounted for the other 40.1%. Though the increase in investment demand seems to lend fuel to the argument that consumers are becoming more interested in gold to shore-up against some kind of disaster, the US in fact still favors jewelry as its end-use for gold: 30.8 tons of US gold demand was for jewelry (75% of the total), while only 10.5 tons were in investment. India, China, and the Middle East also still see the majority of demand in jewelry.

 

European consumers, on the other hand, are buying up coins and bars almost exclusively. According to the World Gold Council, 91% of European demand in Q3 2012 went to physical investment vehicles. Given the uncertainty surrounding the survival of the euro currency, this rush into investment makes sense. As long as the USD is on solid ground, though, I wouldn’t expect US consumers to dive into gold just yet.

 

Bottom line: Gold is still the Bling King.

 

5.  That said, ETFs are actually the fasting growing market for gold demand, up 56% over the four quarters ending in Q3 2012. As the general appetite for ETFs continues to ripen, this isn’t particularly shocking. But coupled with the fact that total investment demand fell -10.3% over the same period, it looks like investors are more interested in purchasing market vehicles similar to gold rather than physical gold itself.

 

Bottom line: Gold fans tend to bad mouth “Paper gold.”  They shouldn’t – demand here helps the overall investment story for the yellow metal.

 

6.  For those worried about diminishing resources, here’s some relief: according to the WGC, a total of 171,300 tons has been extracted from the earth since mining began, with about 60% of that being done since 1950. The US Geological Society estimates that about 51,000 are still underground, with the WGC reporting that about 730 tons are mined each year. Other estimates put the number at something like 86 million tons still to be tapped. Worst comes to worst, the National Ocean Service reports that there is nearly 20 million tons of gold in the ocean. And the data from the NEAR spacecraft sent in 1999 reports that the amount of gold on the asteroid “Eros” is more than has ever been mined on Earth. Unfortunately, until we find ways to economically extract it from the ocean (or from space), those reserves will remain untapped.

 

Bottom line: More gold supply is critical to keeping its status as the ultimate story of value.  Absent the discovery of legitimate alchemy, gold supplies will remain tight until we lasso that asteroid.

 

7.  Gold has always held governments to account. In CE 211, Roman Emperor Augustus pinned the gold coin (the “aureus”) at 45 coins to a pound of gold (that makes one aureus worth about $500 in today’s prices). In 312, Emperor Constantine revised that figure to 72 to the pound: 60% deflation in just over 100 years. Granted, the current century’s monetary inflation is a bit more shocking: from $18.92 in 1911 to over $1,700 in 2012, the price of gold has inflated more than 9,000%.

 

Bottom line: With that kind of track record, gold remains a valuable hedge against government-sponsored inflation.

 

8.  The Dow/Gold ratio (how much gold it would take to buy one share of the Dow Jones Industrial Average) has typically been a good indicator of how bad a given recession might be: when the ratio drops below 1 or 2, things are probably pretty bad. This happened in both 1980 and 2009, but today the ratio sits at 7.6. Admittedly, it’s on a downward trend – but things aren’t looking “apocalyptic” quite yet.

 

Bottom line: Gold is that rare investment product which is historically uncorrelated to financial assets.

 

9.  Almost 40% of total world gold supply is recycled gold in any given quarter in 2012; it was 38.8% in Q3. Recycled gold, which includes melted-down jewelry, bars, coins, and even dental implants, has become a greater part of world supply, even as “new” gold on the market (from mining) has increased year over year. That’s a relatively good sign as well: investors are willing to liquidate their gold (literally) at today’s prices, providing incremental supply and limiting the chance of a “Bubble.”

 

Bottom line: Every piece of gold jewelry, ever coin, every ingot ever produced still has value.  Can you say the same thing about stocks or bonds?  No.

 

10.  If all the gold in the world was given to the US and sold at today’s prices, it would be worth about $10 trillion dollars – and that still wouldn’t be enough to pay off our public debt. In fact, the $10 trillion would only cover 60% of the almost $16.5 trillion we owe. Probably better to just keep the dollar going.

 

Bottom line:  Any chatter about a new “Gold standard” is likely premature.

 

All in all the case for gold in 2013 looks pretty bullish, whether you’re buying for high returns or in preparation for Armageddon. A historical upward trend and increasing demand for the precious metal makes a good case for buying, though I wouldn’t be worried about resource scarcity and the replacement of national currency just yet. For those of you that still aren’t convinced, I can suggest only two things: move to Europe, where you’ll find many like-minded investors, or sign up for an audition for “Doomsday Preppers”

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LawsofPhysics's picture

Truth is always treason in the empire of lies -  same as it ever was.  None of this is just about gold, it's about having the value of your labor stolen.  Any physical asset or commodity of real value should not be subject to manipulation by a well-connected few, period.

LawsofPhysics's picture

will be interesting to see what catches a bid today, that 30-year auction, or commodities.  The currency wars are really starting to heat up.

francis_sawyer's picture

11. It's actually made out of Tungsten...

12. Elementally ~ it comes from supernova explosions, yet has less value than paper joobux printed out of thin air...

Stackers's picture

though I wouldn’t be worried about resource scarcity and the replacement of national currency just yet.

 

"Yet" being the key word in that sentence. and when it is time to worry, it will be too late to act.

BaBaBouy's picture

#11 WARREN Is Secretly buying Up All The GOLD In The Whirld ...

 

He Wants to Be Burried In A GOLD Pyramid...

 

GOLD $50K ... Bitchies ...

economics9698's picture

"25% of the world’s gold is also located right here in the US at the Federal Reserve Bank of New York – 540,000 gold bars – though most of it belongs to foreign governments."

Let me guess, when the SHTF there will be a riot and security at the NY Fed will be overrun and the gold will magically disappear.

Fucking squids are so predictable. 

 

SafelyGraze's picture

"IMF has the third largest gold reserves in the world, "

it depends upon what the meaning of the word "has" has.

he said it better http://www.youtube.com/watch?v=j4XT-l-_3y0

BLOTTO's picture

What happens when they queue in an X-factor event and wipe out some of us good people...say 500,000,000 of us on the planet?

.

Does that do anything to all these outstanding debts out there?

Sorry if sounds silly, but, if their is 8-10% less people on the planet - wouldnt those debts be wiped off...no people; no debt? I realize its more on the national level involving countries, but still...

I cant pay/contribute if i dont exist

.

 

boogerbently's picture

Logic Fail

No people, no consumers.

LawsofPhysics's picture

...but plenty of room for GROWTH, which is what the current economic paradigm requires.

BLOTTO's picture

But Boogy...

.

Aint most of the consumers -costing us more then they are contributing?

Useless Zombies with no money? They are broke and in debt.

 

boogerbently's picture

AHHHH,

I AM in favor of a "selective" wipeout, but that would be racist.

smiler03's picture

Number 11.

 

Gold bugs save money by having intercourse with their stashes instead of women. Specially Crafted gold bars and lots of lube recommended. 

FEDbuster's picture

Wait until the stats on silver become widely known.  Ted Butler has done a great job researching the silver secrets.  Plus, for barter in a post SHTF world, silver coinage can't be beat for recognition and denominations.

Bullionaire's picture

+1

Hey Tylers, tell this guy to stick to picking up eagles in front of steamrollers, and leave the heavy lifting to guys like Brodsky and Rickards.

 

How embarrassing. Cue comment shitstorm.

smlbizman's picture

regular eagles and maple leafs on ebay....are you ready ....50.00+ ..i know..and i always include shipping...the more normal price today is 40+ for coins...40. for bars..

EnslavethechildrenforBen's picture

Buying Gold is like buying a piece of property, one shovel full at a time.

Buying GLD is like buying really expensive little pieces of pape that aren't worth more than a piece of paper.

Buy Gold when the GLD is low, sell Gold when the GLD is high.

Pegasus Muse's picture

This revelation has to be worrying the Market Rigging Scumbags, as evidenced by the Hit Job they put on gold and silver last night. 

Audio Interview:  http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/12/13_Chris_Powell.html  

================

 

December 12, 2012

 Holy Grail” Gold Evidence Panics Western Central Banks 

Today King World News wanted to discuss what has been termed as the ‘Holy Grail’ of evidence which implicates Western central banks in actively manipulating the gold market. This has Western central banks deeply troubled because the information was never supposed to become public. Chris Powell, who has been focused on uncovering this type of sensitive information for 15 years, told KWN, “This is as authoritative (an admission) as we are likely ever going to get that central banks are actively involved, in secret, in the gold market.”

 

Here is what Powell had to say: “Eric, this is a report written to the executive board of the International Monetary Fund from March 1999 about the efforts of the IMF staff to improve accountability in world central bank accounting. The report explains how the IMF staff proposed to require central banks to distinguish their gold loans and gold swaps from their gold reserves so the world could see exactly how Western central bank gold reserves were disposed.

 

The report goes on to explain that when the central banks saw that accountability would be demanded of them for their gold loans and swaps, they panicked. The report says that the central banks surveyed by the IMF staff objected to this precise accounting of their gold reserves.

 

They said disclosure of gold loans and swaps would be what they called, “Highly market-sensitive” and disclosure would interfere with their secret interventions in the currency markets. This is an admission.... 

Continued here: 

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/12/12_Holy_Grail_Gold_Evidence_Panics_Western_Central_Banks.html

 

 

Arcturus's picture

#13 - Basel lll has raised godl from a tier 3 to tier 1 asset. Same as cash and bonds lifting it from 50% of to 100% value as a reserve.

Arcturus's picture

#13 - Basel lll has raised gold from a tier 3 to tier 1 asset. Same as cash and bonds lifting it from 50% of to 100% value as a reserve.

e_goldstein's picture

That's a sick fucking chart. Thanks.

 

Dealer's picture

Thats the sickest fucking chart I've ever seen in my life.  

 

Dealer's picture

This chart has to be a joke.  If its real, this is very sad.

Snidley Whipsnae's picture

Of course there are no 'doomsday preppers' that have gold or have appeared on a stupid tv show...

It's a well known fact that all gold hoarders are severely challenged seamen. They are constantly putting asea only to have tragedies befall their voyages. Consequently, no gold hoarders exist in the Western world... all my gold are Eastern owned or at bottom of body of water. 

Cassandra has it in for PM owners, imo.

 

francis_sawyer's picture

Even the FISH have no respect for gold... You lose it in a boating accident ~ then the fish go right ahead & shit all over it...

knukles's picture

Now somebody's gonne start salting bars they're selling on e-Bay with fish shit now you've given them that idea, genius guy. :)

resurger's picture

h/t to Jim in MN

"So like, NCIS Los Angeles last night was all about a big heist of gold that was a US Treasury interest payment to the Chinese, and when the pretty agents found it it turned out to be tungsten (they drilled it) and then they found the dudes that did it by searching their cryptospy databases for smelters and tungsten purchases and it turned out to be the Iranians trying to destroy us.

No seriously, prime time last night. Hilarious. "

Now 75% of  the worlds gold is with the Federal Reserve, when push comes to shove, blame the DEALERS

Snidley Whipsnae's picture

The Fed owns no where near 75% of the worlds gold. The Fed claims to own somewhere north of 8,000 tons... and that is a claim that has not been proven.

Total known gold above ground in the world... estimate:

"A total of 165,000 tonnes of gold have been mined in human history, as of 2009.[2] This is roughly equivalent to 5.3 billion troy ounces or, in terms of volume, about 8500 m3, or a cube 20.4 m on a side."

http://en.wikipedia.org/wiki/Gold

exi1ed0ne's picture

Posession is 9/10ths of the law.  They have the gold in their vaults, and ownership is based on law which can and will be changed when the occasion suits it.

knukles's picture

Correction: Posession PLUS troops in the owners countries

Mikehy's picture

The Fed doesnt own an ounce of the US gold holdings, the US Treasury owns it. what the Fed owns is the value in dollars of 8333 tons at 42 usd per ounce (approx 10 billion dollars).

August's picture

I'm getting pretty sick our Treasury, State and Defense Departments being kicked around by the Iranians.

Something needs to be done!

johnnymustardseed's picture

Gold and silver will only go as high as JPM and central banks will allow. The continual churning is hard to watch, a decade from now we might be happy to own gold and silver but for now it only fuels our anger at the rigging

boogerbently's picture

More logc fail.

"10. If all the gold in the world was given to the US and sold at today’s prices, it would be worth about $10 trillion dollars – and that still wouldn’t be enough to pay off our public debt. In fact, the $10 trillion would only cover 60% of the almost $16.5 trillion we owe. Probably better to just keep the dollar going."

Keyword (phrase) being "at todays prices."

In this scenario, if gold went to $3400/oz the US would have 25% MORE than our entire debt.

At $6800, a $34 trillion surplus.

In simple terms, I see Sovereigns buying gold, then allowing (manipulating or stifling current manipulation) the price to rise, selling to cover debt/deficit/printing.

It's just a matter of time. There is NO other cure for the currency debasement.

exi1ed0ne's picture

It's not stolen.  Our labor is owned by the political juristiction we happen to reside in - our slave pen if you will.  We may move to another slave pen (Thanks Simon Black!), and have kinder (or harsh) masters.  We can even trade the canteen tolkens of one slave pen with another, for a nominal fee of course.  Gold trancends this, since it is not produced by the slave pen owners.  However, through taxation or outright force it can be taken "for the good of the other slaves" whom would be happier to increase their lot at the expense of your own.

I don't agree with the above - boils my blood in fact, but I recognize the truth.  However, this is the first time in human history thet there was nowhere else to go. The long spiral will take us to one of three destinations - population destructive war (which lowers the knowledge carrying capacity of humanity), the boot smashing into the face of humanity forever, or colonization of space.  While the last is my sincerest hope, it is also the least likely.

FEDbuster's picture

World War is always their first option, thins the heard and puts the rest to work.

becky quick and her beautiful mouth's picture

i believe any of this. maria told me so.

Ralph Spoilsport's picture

Barbarous relics FTW!

Fix It Again Timmy's picture

Gold - "You're going to like the way you look."

edifice's picture

Suit Beard has spoken! "I Guaaaraaantee It."

unrulian's picture

Bullion Bitchez

kliguy38's picture

We may be "doomer preppers" but that trumps "starving poor dumbazzes" .....BIATCH!

tony bonn's picture

gold is not a commodity - only this type of puerile deceitful crap is.

Seasmoke's picture

I know lots of people in many different walks of life. I do not trust any of them. Heck I don't trust myself. Gold protects against the lies.

buzzsaw99's picture

nice piece to console the faithful

and the band played on...

nearer my gold to thee:
http://www.youtube.com/watch?v=iHsx1cvACkY

WhiteNight123129's picture

Never look at the price, always the value. Gold value is ok, Silver is better.