Demand For Physical Gold Is Collapsing

Tyler Durden's picture

Authored by Simon Black via SovereignMan.com,

I serve on the Board of Directors of a large Singapore-based company that’s in the gold and silver business.

And, last night during our quarterly conference call, the management team gave me a lot of intriguing information.

Sales of physical gold and silver are collapsing across the entire industry.

At the US Mint, for example, sales of US Eagle gold coins fell by 67% between February 2016 versus February 2017.

And sales of US Eagle silver coins are down 75% over the same period.

The World Gold Council’s data also shows a substantial decline in physical precious metal demand in 2016, particularly with bars, coins, and jewelry.

Suppliers and refiners in the precious metals business are echoing these numbers, lamenting that sales are extremely slow and margins are falling.

For our Singapore company, this decline is irrelevant.

They have their own proprietary, state-of-the-art storage facility and a number of cutting-edge service like bullion-backed peer-to-peer loans, so business is great.

But I would expect that a number of other bullion dealers will probably go bust if this downturn lasts much longer.

The one conundrum is that this trend does NOT correlate with the price of gold.

In US dollar terms, the gold price is up 16% since the beginning of 2016.

So it would be reasonable to conclude that sales of physical bars and coins are up as well.

But they’re not.

The reason is because there’s a HUGE difference between physical gold and “paper” gold.

When people talk about the gold price, they’re really quoting the price of gold contracts at exchanges around the world in London, Shanghai, Chicago, etc.

Traders aren’t actually buying and selling physical gold.

These gold contracts are merely paper financial instruments, like stocks and bonds, that traders use for speculation.

When some conflict breaks out in Africa, the knee-jerk reaction is for traders to buy gold contracts.

And when central bankers announce that the economy is totally awesome, traders dutifully dump their gold contracts.

But they’re really just buying and selling highly leveraged paper assets. Nothing physical changes hands.

It’s the same with gold ETFs; these are merely financial instruments to gamble on the paper price of gold.

Investors who truly understand the benefits of owning gold, and don’t simply want to speculate on the price, buy physical bars and coins from a dealer.

And quite often there’s a massive difference in fundamentals between the demand for physical coins and the paper price.

During the 2008 financial meltdown, the paper price of gold and silver plunged.

Speculators and traders were hit by margin calls and forced to sell their contracts.

But demand for physical coins was incredibly strong; savvy investors were looking for a safe haven.

There was a total disconnect between the paper price and physical demand.

That’s now happening again, but in reverse. The paper price is rising, but physical demand is falling.

Management told me last night that they’ve been invited to speak at several investment conferences attended by family offices and high net worth individuals.

But they told me that there’s very little interest in owning physical precious metals among these wealthy investors.

Everyone seems to want to dump all of their money in US stocks or real estate, expecting that they’ll easily make 20% despite both markets being at all-time highs.

This strikes me as total madness. Few people ever prospered buying what was popular and expensive.

There seems to be no fear in the market… no regard for sense or safety.

And my contrarian instincts tell me that this complacency is a great reason to own physical gold and silver right now.

Remember that gold is primarily a form of savings.

You could hold your savings in a bank account, denominated in paper currency like dollars or euros or renminbi.

Or you could hold savings in physical cash. You could even own government bonds.

Each of these is a form of savings.

But so is gold and silver. (And cryptocurrency, for that matter.)

The difference is that gold and silver cannot be conjured out of thin air by a central bank.

And unlike cash, or money in a bank, precious metals actually keep pace with inflation over time.

I remember having a conversation once with a famous investor who told me that he didn’t know what was going to happen in the future…

… and THAT’S why he owned gold– for the “I don’t knows.”

Will there be a trade war with China in the next few years? A shooting war? A major debt crisis? Another terrorist attack? “I don’t know.”

Gold and silver are fantastic insurance policies against the “I don’t knows” due to the metals’ 5,000 year history of value and marketability.

There’s no need to go overboard and keep 100% of your net worth in precious metals.

But given the obvious risks on the horizon that we discuss regularly, and these bizarre demand trends, it’s a great time to consider adding to your physical precious metals savings.

Do you have a Plan B?

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Cognitive Dissonance's picture

Risk is only truly recognized and acknowledged after it has bitten you in the ass. Until then it's all just an esoteric concept easily pushed aside by greed and lust.

J S Bach's picture

Whom the Gods would destroy, they first make mad.  That old adage has never been more true than in our present insane asylum.  I am by nature not a dooms-day kind of guy, but I believe that very soon, there are going to be an awful lot of people suffering an awful lot of hurt.  Our counterfeit culture is totally oblivious to any kind of reality.  When the inevitable hyper-inflation comes, hundreds of millions will lose practically everything they hold dear.  Crime and suicides will break all records.

Wait - maybe I do sound kind of doom-and-gloom.  Sorry, but the tea leaves are brown and rotten.

tmosley's picture

People have given up. The market has stayed irrational longer than we could stay solvent.

May those who did this to us burn in Hell for eternity.

wren's picture

Gold will always be gold, chickens will always lay eggs, bullets will always have the power to kill people, stocks will always have their value distorted by the greedy, digital 1's and 0's will always be a rabbit in a hat, and Fiat is just a method of theft. Gold, guns, and food, will ALWAYS, under ALL circumstances have value. The values of everything is simply supply and demand. When the demand goes away because people don't give a crap how many pieces of paper you have, how much time it took you to mine binary digits on your gaming computer in between session of World of Warcraft, or how many shares you have in a company as US paper hits hyperinflation, there is safety in the basics. Anything else is just a game devised by the house with odds stacked against everyone but them. And the house makes us play their game because the only way they can own you is to force you to participate.

Whether you are rich or you are poor, never forget what holds real value.

What I can hold in my hand has value I place on it. I determine the value of what I physically have. If you don't meet that value, then it remains mine. Anything else, cash, stocks, bitcoins, I rely on trusting others to set it's value. Well, I'm all out of trust.

 

Dame Ednas Possum's picture

Simple, undeniable, immutable truths. 

Yet for the time being JSB's astutely labelled 'counterfeit culture' prevails... for now at least. 

Those with the foresight should be richly rewarded with increased odds of survival when the inevitable collapse arrives. 

And 'tmosely' I doubt very much that 'people have given up' as long gold is a life choice. 

 

Note: it is revealing that the author has ignored the steeply increased demand since February illustrated within the chart he has supplied. Always question the agenda and ulterior motives. 

Stuck on Zero's picture

The Dow has gone 108 days now without more than a temporary 1% decline. What could possibly go wrong there?

Pinto Currency's picture

China net imported 1,300 tonnes of gold in 2016.

Don't see a collapse there.

https://www.bullionstar.com/blogs/koos-jansen/china-net-imported-1300t-o...

Tell us more about this 'collapse' in demand for physical gold. Numbers not anecdotes.

Doña K's picture

I am not buying this theory. Physical gold demand is not important right now. It is now the lull before the storm or the receding waters before the Tsunami. By the time awareness and fear strikes it will be too late.

Urban Redneck's picture

Simon's theory is based on fantasy...

During the 2008 financial meltdown, the paper price of gold and silver plunged...

But demand for physical coins was incredibly strong; savvy investors were looking for a safe haven.

The last time I stood for delivery from the CRIMEX was at the onset of the crisis, and the pickup price for physical gold bars WAS the contract price.  Perhaps the international man of mystery who fancies himself a PM expert only has experience at his local coin dealer, who almost invariably makes bank by countercyclically catering to suckers and their worst fears.  The vig is not a fixed %.

 

Bendromeda Strain's picture

Besides - nobody needs Simon to tell us about the East/West disconnect in phys vs paper. There is a live real time website for that.

Did The System Collapse?

manofthenorth's picture

And they took away the purchasing power of the worlds largest gold market. If the Indian people had not been robbed of their money, the trend that had been established over the last 15 years would not have been so handily slowed.

TBTB can shuffle the deck chairs but this ship is going down,

hedge accordingly.

Theosebes Goodfellow's picture

~"my contrarian instincts tell me that this complacency is a great reason to own physical gold and silver right now."~  

No shit, Sherlock.

Look, the entire world is playing Ponzi Musical Chairs, and for now... the music plays on. But those chairs are disappearing, and when the music stops the dearth of places to park one's ass will be brutal.

I'm good with that old Golden Rule. I'm good with being able to make rules when the music stops. I look at the bright side. I can wait and I don't have to dance. Better yet, I'm already sitting down. Did Mrs. Yellen shout "last call" yet?

hope_talk's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

Teja's picture

Believe so, too. We are now in a phase where lots of people believe America / UK will be "great again" with Trump and Brexit, and the Fed starting to raise interests, seemingly without problems. Complacency. But for all three, the second shoe has not really dropped yet. All three have in a way only happened on paper, the real changes still to come, and those wont be all happy happy.

Also looking at the Comex gold inventory data as kind of a fuzzy index, both Eligible and Registered have had their max inventory in 2nd half of 2016, going down in parallel (which is unusual in itself) since then.

Erek's picture

Simon will always sell you some property in South America for some gold. Don't be fooled.

PAPA ROACH's picture

If we're talking systemic collapse, gold is a useless chunk of yellow fucking metal that you can't eat, drink, or wipe your ass with. Imagine what would happen to you if you knock on a door in Venezuela right now and offer gold for food or toilet paper.

giovanni_f's picture

if you happen to have gold in venezuela you won't have to knock on doors for toilet paper. Unless one is an accomplished moron like you are, though.

Douche McGoosh's picture

Of course demand for gold is disappearing you freaking retards. Bitcoin supplanted gold in 2009.

manofthenorth's picture

Comparing apples and oranges is a fools errand.

Until BC appears on the periodic table of elements right below silver you are living a lie fonestar.

 

aurum4040's picture

Bitcoin supplanted gold in 2009 huh? If you can mine a piece of finite bitcoin from the earth under your feet, malletae the bitcoin into any shape you desire, then melt down your creation to form something new and completely distinct, and finally sell the new creation anywhere on earth for litterally anything all while the bitcoin has conductivity - bitcoin still wouldn't supplant gold - you'd have something equal. Dont get me wrong, bitcoin obviously has a space and ethereum will overtake bitcoin but as long as there are humans on this earth gold will never be supplanted by anything. 

Lore's picture

The fact that central banks are looking at rolling out their own version of cryptocurrencies should tell you all you need to know. They're just another flavor of 1s and 0s, with value measured by diktat.  I'm a small speculator in BTC and view it as a leading inflationary indicator, much like the DJIA as it moves in direct tandum with flow of QE (ZH posted a chart previously that demonstrates this clearly). 

Much depends on the scope of the collapse that looms in the years ahead.  If all that happens is disruption to the petrodollar, then most global commerce will continue but switch to alternate currencies and precious metals and cryptocurrencies, albeit at higher levels than we see today.  But an outright global discontinuity of the sort that we see increasingly hinted, especially in expensive private newsletters, would mean a halt in conventional electronic commerce and loss of faith in all things fiat, making simple barter a matter of survival.  That's when physical trumps electronic. 

Teja's picture

I would not view BTC as a leading inflationary indicator. Not connected to basics like food or fuel. Using a BTC index since eg 2010, food prices would have fallen a lot. Unluckily, my wages, too. Price of BTC is related to its utility as means of money transfer, especially when governments try to control that. But that is going to go up, quite sure of that. Only that maybe Ethereum will have more of this utility, being also quite liquid, and faster.

Gold, compared with BTC, has well documented utility as store-of-value, less for money transfer. Too heavy when crossing borders by swimming over rivers or walking through deserts, and difficult to hide, with metal detectors and X-ray at airports. So the future of Gold vs BTC depends what will be more in demand, money transfer or store-of-value, and of the speculators expectation regarding these two.

 

Miss Informed's picture

The same year that trolls supplanted the human race. What a coincidence!

Bendromeda Strain's picture

Muh Rothschilds selling their stax for the BTC homie!

Ghost who Walks's picture

Dear Dame E,

I agree with your observation from the graph.

This is a very interesting trend and it needs to be linked to some underlying factors.

With all things gold we need to be aware of the subterfuge, disinformation and mis-direction that is practiced to ensure that some parties have an advantage. What is really going on?

I note that while it is possible to stack gold and food in Australia, any attempts at self-preservation or self-protection seem to be frowned on by the those who allow the sale of guns and ammo?

ffed's picture

As technology  progresses EVERYTHING  will eventually  lose vale to  the point where it will become free.   Or there will be civil  war.  I think we're  headed towards everything free myself, oh and the earth is flat.

Vigilante's picture

Are you being sarcastic?

Come to think of it, shitloads of things are free now

I never buy books/music/films anymore as everything is free...or almost free.

Goods out of China are very cheap...won't last forever but I won't do either!

 

BeanusCountus's picture

Agree. But it should be cheaper now if physical demand is low. Premiums going up for physical silver. Doesn't make a lot of sense. Will wait to buy when premiums go down.

BeanusCountus's picture

Double post, sorry. Blaming St Patty. :)

MFL5591's picture

No demand in the land of fruits and freebies but, look outside these walls and the demand is robust so this story, as usual is a lie!

Vilfredo Pareto's picture

Lol.  Keep in mind bear markets swallow as many people as they can.   If gold bugs are finally capitulating then surely we are near a stock market top.   Given ten year trailing PE there is almost no way that stocks do much these next twenty years.  Nobody is getting rich dollar cost averaging into gold, stocks, or any broad market. 

 

A few lucky timers perhaps.

flacon's picture

Simon black always comes across so cocky. 

eclectic syncretist's picture

He evidently doesn't know that China and India account for over 50% of global demand between them, and both are expected to consume ~10% more gold in 2017 than they did in 2016. That must be why he's a newsletter pusher.

BobEore's picture

Oh, I think he knows. That and a lot more...

which he won't tell you. Until there's no more gold to be mined in them there hills where the huddle masses of goldenholders are hiding out in forlorn hope of better days!

Black hangs out in the right places, to know that China has not amassed a stash of shiny in order to come to the rescue of western metallists - quite the opposite - it's a weapon of war against them. They - as Simon don't sez - are indeed the "manipulators" who move the markets up n down every day, via their JPM agents and other buds...

and park those daily profits into even more phizz. Beat downs won't end till they say they can. Then we see - after the liquidation and embezzlement by which the new owners of the US Treasury will conduct a gigantic MF Global -

prices go sky high. Much too late for the T Mosleys of the world to ever benefit.

Bay of Pigs's picture

Hard to say when prices go higher chiva. But you're right, it has been a long wait for many in the PM community.

Sentiment is as bad as I've ever seen, including the lows of 1999, 2001 and 2008.

BobEore's picture

Far longer than ANY of us expected BOP.

Yet those who paused the "never been a better time" button long enough to sniff the wind...

and use that innate horse sense we all were born with, tho few kept aboard, could tell by about 2014 that it was time to get a new POV about the deal. Those who did, well, have made out all right... Location, Location, Location being the key ingredient in that equation.

Those who continued sipping the foolaid - well, what more is there to say at this point?

Hey - speaking of locations - looks like you be getting closer to the sweet spot - Thailand? You''re only a two hour flight down to the action station Simon be speaking about here.

SILVER BULLION. Look it up online. Only a short hop from the airport in the freezone. You can get down in the morning from Bangkok, and be back for sundowners same day. Everything that SILVER DOCTORS AND the rest of the poseurs here ain't. Real storage, with real people... of real money.

Highly recommended - for folks who grew up, chucked the Goldburg gulag, and got serious bout surviving.

Que te vayas bien compañero!

 

giovanni_f's picture

Less-connected-than-he-thinks and at times slightly over-dramatizing Simon Black's articles timing is proof that the low of the 8-year cycle is almost in. Banks, souvereigns, institutions have been or are increasingly in the process of going (physically) long, may take another 1,2 years before Joe Sixpack starts understanding that there has been a trend, who knows, but Sven Svenson won't be onboard when the train leaves the station. And the power group mentioned above for sure won't tell Mr. Black and Otto Normalverbraucher or Signor Rossi what they are on to.

Mr.BlingBling's picture

That may be, but I, for one, was comforted to learn that this decline is irrelevant to Simon's large Singapore-based company due to its proprietary, state-of-the-art storage facility and variety of cutting-edge services.

August's picture

Personally I find Simon's public persona very irritating (due incessant signalling of his own special-ness).

Still, unless you, dear reader, have zero interest in the possibility of a safer-haven outside the USA for yourself or your assets, I'd takes his opinions seriously.

You may indeed get into trouble following Simon's suggestions (e.g. parking assets in Mongolia or Georgia (the one in the Caucasus)), but all-in-all he seems to be a reasonable source of information.

No, I don't work for Simon Black, but I have subscribed to his service for years, and find it - at the minimum - mentally stimulating.

Barry McBear's picture

Agreed.  And what's with the paragraphs?  Does he think every sentence he utters is so insightful as to warrant its own paragraph to let it sink in?

BigJim's picture

POG down? BTFD!

POG up? Back up the truck before it goes parabolic!

Fester's picture

No, sell the truck and buy moar pretty.

SeuMadruga's picture

After all, what one really needed to transport it was a boat...  ;-)

Peacefulwarrior's picture

Brilliant statement! +1 and I'd buy you a beer if I could!

Got The Wrong No's picture

Cog would be an interesting guy to sit and have a several beers with. My problem would be that I couldn't drink, cause I wouldn't be able to follow the conversation if I did and maybe not even then. 

squid's picture

That is when you CAN follow the conversation best!

 

Squid

SilverDoctors's picture

Interesting comments from Simon Black.  Andrew Maguire just stated Asian gold demand is EXPLODING, and expects a system reset within 90 days as London will be out of gold. 
Simon says Asian gold demand is dead.  Simon quoted mostly US Mint numbers for his assumptions however.  US gold and silver demand is assuredly down quite a bit year over year...but we suspect the US retail investor is not the one that will ever break the back of the paper fractional reserve ponzi metals scheme...(and Switzerland gold export numbers for Jan and Feb were a massive 320 tons, adding validity to Maguire's claims as that gold is all headed straight to China)

-Doc 

francissba's picture

Doc  I concur.  When Simon Black counters the reality of gold demand he's usually selling something.

Bay of Pigs's picture

Greetings from Thailand my good friend. You see BobEore (aka chiva) is back in the house? Like old times again over at Doc's place! Haha!