Is This Why Gold (And Europe) Is Underperforming US Stocks (For Now)?

Tyler Durden's picture

It seems the repayment of LTRO funds had quite a significant 'deleveraging' effect on the world's easy policy central bank balance sheet expansion. In USD terms, global central bank balance sheets have just experienced their biggest 4-week plunge since July 2009. Gold, like credit markets and European stocks, which have all underperformed US stocks, it appears merely discounted expectations of a drop in liquidity. We humbly suggest the momentum fueled, rotation-meme-driven, retail-is-in-now, US equity markets are due to meet their liquidity-maker sooner rather than later - if history is any guide. While, of course, the central banks' balance sheets are expected to expand (infinitely if they are to be believed), it would appear markets are stuck in the short-term for now (as opposed to discounting the future). Certainly the dramatic drop in central bank liquidity has had an effect in Europe as (led by credit) equity markets are well off their highs.

Global Central Bank balance sheets have seen their biggest 4-week plunge since July 2009...


And it appears Gold was a better discounter for now...


of course, credit markets have already traded to negative on the year and European stocks have plunged recently...


Charts: Bloomberg

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Chuck Bone's picture

Need moar leverage

trav777's picture

Have ANY of the idiot motherfuckers on this site even BOTHERED to look at a production curve of gold??

It will answer your fkin questions.

olto's picture

What are you saying, trav77? This 'imf' has no idea, but, please, tell me what you are trying to say

trav777's picture

fuck, here's just the first hit on world gold production

look at the chart; it's cribbed from USGS.  A relatively significant increase in production over the past few years has led to relative price stagnation.  2011 exceeded 2001's peak according to data I saw.

unless you ppl want to kvetch about the fucking daily movement instead of the larger trends, in which case have at it.

fuu's picture

From your link:


"III. Gold production in 2010, 2020 and 2030.
Gold production has increased by a factor 2.1 from 1959 to 2010. At the same time, the world population has been multiplied by a factor 2.2. Thus we produced more or less the same amount of gold per inhabitant as in 1959.
When one does the ratio of the gold world production and the world population, we can see that gold production was of about 0.36 grams per inhabitant in 2010, which is close to the average over the last 100 years (0.37 grams). According to estimation the world population should reach 7.2 billion in 2020 and 8.2 billion in 2030. This should indicate us a “necessary” gold production of 2803 tonnes in 2020 and 3034 tons in 2030. In the short term (1 to 3 years) as discussed previously, the world gold production could still increase slightly, but in the next 10 or 20 years it will definitely decrease because of the number of good quality gold reserve. A difference will appear between the increase in the world population and the decline of the  gold production. The world will produce less gold with a growing population and an exponatial growth of the money supply.
U.S. money supply, M3, has increased by a factor 35 only between 1959 and 2006 (since March 2006 the U.S. federal bank does not communicate the amount of dollars printed)."

pupton's picture

Hey trav, can't the same be said for world fiat production over the same period?  How many above-ground ounces of gold are there for each unit of fiat floating around the world, compared to whatever period in time you want to talk about?

olto's picture

Thanks, trav 77,

This data is in line with normal economic expectations; as price increases, activity also increases-----'running out of gold' or 'peak gold' is a very sophmorish reason for price increase in a market for a product that is never really consumed, imo.

More interesting to me is the squeeze at the margin where the sellers transact---I mean Bill whats-his-name of Microsoft will never be forced to sell--nor will hundreds of others who hold large physical positions----but if there is anything to the noise regarding theBBs and CBs having over-allocated, they will be forced to cover at some point. If they simply default then there is no problem for them and a lot of us are going to feel pretty stupid----but, if it all works out, they will have to cover and----where is the gold, in 100s /1000s of tons, going to come from?

I think that it will just end up as one massive default, but just in case the Gbugs are right-------well, no point in not having a little insurance    

Northeaster's picture

The curve is going down (I looked at appx. 6 sites). I guess I'm not very market astitute to see your point. If the curve is going down, CB's are buyers, wouldn't this increase pricing? Or, is it the few that can actually move the markets on their own forcing the price to stay (relatively) stable where it's at? Or, is it to disenfranchise people looking for actual yield to go back into stocks (for possible 2008 redux slaughter)?

Seriously, there's been plenty of bad speculation on these pages, and elsewhere. Thankfully, some of the posters of ZH past don't post here anymore, as the world should be over by now (according to them).

Al Huxley's picture

I don't think the production curve for gold is as relevant as other factors, for a couple of reasons

- most of the gold produced over history is still around, so annual production relative to above-ground supply is relatively small.  Real supply available to the market is more affected by whether or not existing holders (of real gold, not paper) are willing to sell what they have than it is by the relatively small amount produced by miners.


- the 'nominal supply' of gold (for as long as the market continues to confuse and conflate paper gold with physical gold) is effectively infinite.  For the moment this means you have the absolutely mind-boggling opportunity to buy REAL GOLD (and silver) at a price determined by a fictitious paper supply.  Once the slower (or more effectively brainwashed) segment of the market catches on that maybe this is a bad way to price the physical asset, the sale will likely end. 


But I expect the mining sector could shut down completely and the effect on gold price would be negligible - just print up an extra 80 million oz in paper gold to cover the shortfall.

Northeaster's picture

Thanks for the response, but isn't the entire premise based on whether or not those holding physical gold ever sell it? Or, I guess more remotely, everyone at once wanting to buy it at the same time drying up supply making "paper" irrelevant? What environment would make that happen? Seriously, I just don't see it happening short of an all out global economic collapse. Theoretically of course it could happen, but in reality? I'm not trying to argue with your statement, I simply don't know, and I'm going by my own amateur assumptions of how market forces work.


Al Huxley's picture

I think your question gets at the fundamental question everybody who owns or is considering buying gold needs to answer for themselves - eg: 'Do I want to buy gold as an 'investment/speculation', and track the price in USD (or EUR or whatever)', in which case it's essentially the same as buying a stock or a bond, or any other security/investment.  Or, 'I want to buy gold as a currency-independent, long-term store of wealth and insurance hedge against the possibility of financial crisis brought on by 40+ years of unlimited fiat money and debt creation and the possibility that all those exponential debt and currency creation curves out there might actually end the way most other exponential spikes in the market end'.  Your thoughts about gold, the price of gold, how you feel about ongoing price manipulation (or even whether you think the price is manipulated) will depend a lot on how you which of the above answers best captures your thoughts on the current financial environment.


One thing I'd put out there for consideration is that there are something like 6 or 7 billion oz of gold out there - about 1 oz for everybody.  And there are a lot of really wealthy people who already have well over their 1 oz allocation (real physical gold, not GLD shares or comex contracts).  As a general rule, the wealthy right now (and historically) are buying gold, and the poor are selling theirs (think 'Cash For Gold').  Why do you think this is, and who's more likely on the right side of this trade?

Ham-bone's picture

Speaking strictly from a production side, after any price spike in oil or gold, potential producers see the higher price puts them in the black.  So, global production increases from previous peak in '01 to new peaks starting in '10.  What I find really interesting is that much like oil, the higher price of gold is drawing in much more marginal producers (large producers are barely growing production...most growth of production is coming from smaller, newer producers).  These smaller producers don't have the scale and production costs are much higher, ore grades are trending down all around. 

So, price spike draws in any and all producers but prices slipping a little (and certainly not spiking as many producers/investors had dreamed), costs continuing to rise, and we will see many marginal producers again move to the sidelines, production slow and potential for the next price spike in place...and then of course there is the discrepant growth in credit/debt vs. gold but that's a given.

Al Huxley's picture

True, but that's more related to the valuations of mining stocks (large producers and smaller explorers. developers, etc.) that to the POG.  No matter how many new mines come on line, new supply from mining is always going to be dwarfed by current above-ground supply in vaults.

Ham-bone's picture

I don't disagree...just think everything is ultimately priced on the margin...a 1% surplus or 1% deficit in supply to new demand can have far outsized price impacts if above ground owners aren't keen to sell until higher prices or more attractive options exist

Never One Roach's picture

My house has plunged by over 35% the last few years while the gold I bought a while back has gone up over 250%.


res ipsa locatur

olto's picture

I understand that the physical pog will be set as the marginal sellers act and that now with the paper gold pricing that everything is a 'trade'; so, we are waiting for the BBs an CBs to finish playing. One can already see, also, that these players are snared in their own trap----the currency game/value of physical gold. But, still, I ask:

What is trav77 implying with his cryptic troll-collecting comment?

Any idea, Al Huxley?

Al Huxley's picture

It's kind of cryptic, but I took it to be suggesting that the price of gold will be driven (or at least strongly influenced) by the amount of new supply from mines.

olto's picture

Al Huxly,

That trav 77 seems too bright to be suggesting the obvious. I am curious about this because I thouht that he might be implying that the production is the margin where the BBs and CBs will have to buy the physical to replace their 'over-allocations'. If this turns out to be the case, then production will become critical to pog---I agree with the professional consensus that this is not so at present.

I wish I knew what that trav 77 was referring to----it might something interesting and important---

Any other thoughts, Al Huxley?

I ask only because you are a smart guy and,         thanks for your help

Bicycle Repairman's picture

Trav isn't as smart as he, or his alter egos, might suggest.

mkhs's picture

Again with the kvetching.  Oy vey.

Bicycle Repairman's picture

BR's message board rule #4:  If an inflammatory, cryptic comment goes unexplained it's BS.

thewhitelion's picture

+1,000  More wisdom in your second paragraph than in a hundred years of fed meeting minutes.

rosiescenario's picture

Right....platinum and silver are far more price sensitive to production levels. Also, since China is a major gold producer one cannot get an accurate handle on actual gold production.

Cognitive Dissonance's picture

This is assuming we can believe the Fed's own self reported numbers.

<Just sayin'>

Sudden Debt's picture

Let's meet in the middle.... 1760$ and papa bear over here will be a happy bear

edifice's picture

I say, make it $1776. Patriotic gold, bitchez.

Gazooks's picture

..or $2776 as salute to the future

Sudden Debt's picture

Betty and Barny won't leave any sleep over it.

Dr. Engali's picture

The paper price of gold won't rise until the morgue says it rises. Until then BTFD.

TahoeBilly2012's picture

It is logical to assume PM are massively manipulated. If the dollar is, mortgages are, the bond market is, the stock market, why on God's green earth would the metals not be when they represent as much or more a threat to "financial stability" as the rest? I realize this is obvious to many here, but I think repeating simplistic arguements is important.


Bicycle Repairman's picture

"I realize this is obvious to many here, but I think repeating simplistic arguments is important."

Repetition is the soul of education.

firstdivision's picture

ECB unwinding some things, or actually marking the shit to shit?  We know its not the Fed unwinding here as POMO is alive and well.

Ham-bone's picture

the playing board has been tilted so that going up just employs gravity...going down is like fighting an uphill battle.

lotusblue's picture

Well,and Annonomous hacked into the Fed .It's all manipulated

Son of Loki's picture

at least you can eat stocks.....

Stuck on Zero's picture

Only soup stocks.  Campbells anyone?


Never One Roach's picture

stocks---moar fiber but zero mineral content....


Iam Yue2's picture

or is this the simple reason why/


"An RBI panel has revived the proposal of setting up a gold bank, or Bullion Corporation of India, to reduce imports of the metal-- an idea mooted over two decades ago by the then Finance Minister Manmohan Singh.

"With considerable changes in policy related to gold over the past 20 years, the proposal for setting up a Bullion Corporation of India (BCI) needs to be revisited and activated," a committee, headed by K U B Rao, to study the issue of gold imports said in its final report."

Iam Yue2's picture

And with regard to Europe, the true underlying picture is best exemplified by the fact that the Euro Stoxx 50 has lost all of its 2013 gains .....

Inthemix96's picture

I aint to sure of the melting point of gold folks, but I presume it is warm enough to dip bernank and the geethner in and gold plate them.

Bringing back that end scene from terminator two.  But lets see these two dwarf fuckers scream for their mothers as they are gold plated alive,  I would fucking pay to watch that.  In-bred fucking nation wreckers.

i_fly_me's picture

"The only thing we think we know for sure is that the tinder on the forest floor is piled high and it is very dry."

--Lee Quaintance & Paul Brodsky 'Apropos of Everything'

e-recep's picture

could be. the exponential uphill climb of gold was interrupted again during the percussions of lehman bros. going belly-up. we are going thru a similar phase. all charts point south except the stawk charts.

Confundido's picture

Can anyone fill in the blanks for this matrix? Columns: Tomorrow Draghi is Hawkish / Dovish. Rows: Tomorrow jobs numbers are good/ bad. What will be the price of gold in each of the four cells???

WmMcK's picture

i(Lemiscate)? (infinity symbol not showing)

Al Huxley's picture

This isn't directly related to the article, but I continue to be perplexed as to why so many purported 'gold enthusiasts', who claim they want to own gold, get frustrated when the price doesn't go up.  My local supermarket had a temporary sale on coffee - almost 25% off.  I drink a lot of coffee, so for me this was fucking fantastic, I didn't complain that the price of coffee wasn't going up fast enough.

Confundido's picture

I'm sorry, Al...I know I call myself confundido, coffee an asset to store value? WTF????

Al Huxley's picture

Its something that I want to own.  As such, I'd rather pay less for it than more for it.  Asset, store of value, does it matter? I want my share, and if I can get my share at a lower price that's a good thing for me.  I don't say to myself 'I wonder what's wrong with coffee now that the price is going down.  Maybe other people don't want coffee - maybe that means I shouldn't want coffee either'.  I don't fucking care whether or not other people want coffee, lower price is a good thing for me.



ClumsyBoatman's picture

I got your back on that Aldous