Foreign Gold Demand Grows While Mine Supply Decreases – This is the Real Story

Via Adem Tumerkan @ Palisade-Research.com

 

Emerging markets are starting to get restless with the U.S. about gold and the dollar’s hegemony.

Just last week, Turkey announced that during 2017 they had withdrawn about 27 tonnes of gold from the New York Federal Reserve’s vault.

The Turkish Central Bank also reported that their gold holdings increased by 83 tonnes during 2017.

And adding salt to the wound, the Turkish Dictator President (Erdogan) said that all International Monetary Fund (the IMF) loans should be paid in gold – not dollars.

 

What I’m saying is that these debts should be in gold. Because at this point the karat of gold is unlike anything else. The world is continually putting us under currency pressure with the dollar… We need to save states and nations from this currency pressure.”

 

I’ve written about Turkey and their worsening currency crisis, so gold for them is important.

But these kinds of comments are publicly discouraging to the U.S. and the dollar.

Countries understand the free-lunch the U.S. has. . .

If all debts are in dollars, the U.S. can print up as much as they want to pay off their own debt. But other countries can’t do that. They’re subjected to the dollar and its inflation or deflation; the Fed’s rate hikes and rate cuts.  

If it was just Turkey, no one would care.

But it’s not. . .

Here are just some of the countries moving to secure their own gold and avoid the ‘dollar dominance’.

Russia is aggressively adding gold to their vaults.

In March they added 300,000 ounces of gold. Their gold reserves are about to eclipse 2,000 tonnes.

This is more gold than what China officially reports.

Mentioning China, it is difficult to gauge how much gold they have and are continuing to buy.

Just in-case you didn’t know, China is also the world’s largest producer of gold.

If you look at the physical gold withdrawals from the Shanghai Gold Exchange (SGE) – the best measure of the Chinese gold market – the demand is growing.

 

 

China also launched the Petro-Yuan last month which allows them to bypass the U.S. Dollar and trade gold for oil.

There is a growing list of countries publicly pulling their gold out from the U.S. Vaults.

Germany, Netherlands, Austria, Belgium, Russia, China, Turkey…

They all want their gold back – at least out of the U.S.

 

It’s not hard to see that the price of gold is setting up for a huge run.

Not only is global demand strong, but the supply side is what I’m really excited about.

For instance, take a look at the collapsing gold output from Barrick Gold (NYSE: ABX) – one of the world’s largest producers. It’s been in steep decline for years – down nearly 50% since 2012.

 

 

Most media will shrug at this data – but we see something much bigger.

It reminds us that gold is finite and that unless they continue replacing reserves, there won’t be any more gold to mine.

The already mined gold was the easy supply – the low hanging fruit.

Mining for gold is only going to become more expensive and difficult as time goes on – and the last few years has left the sector vulnerable.

Once gold prices explode higher, the mining sector is ill-prepared to take advantage of it.

These are the foundations for my favorite type of bull markets – caused from supply destruction.

The gist goes like this. . .

After years of high prices  – they will eventually crash.

Remember, bear markets are authors for bull markets and vice versa.

For example, think about oil from 2008-2014. A barrel of crude was over $100 for years. Then in 2014 and 2015 prices crashed all the way down to $20 – over 80% loss. . .

Once a bear market kicks in, investors leave – fast, and marginal companies go bust. Only the strongest survive until the glut’s liquidated.

It’s very Darwinian during this period of the cycle – the bottoming phase.

Producers that can still squeeze out a profit will do so, but they will be conservative with their reserves, exploration, and construction projects. They’ll cut out anything that isn’t economical – by putting them on hold until prices rise.

Putting it simply, they trim all the fat.

It’s an ugly, unexciting time for the crowd. But historically, this is the absolute best time to get involved and start making big positions.

This strategy of ‘creative destruction’ is what I learned from the famous Austrian economist – Joseph Schumpeter. Many of the old mining companies that couldn’t survive are liquidated and the projects they mishandled are transferred to new innovative entrepreneurs to improve.

Betting against the fragile, over-indebted, high-cost producers and buying the most robust companies for your portfolio.

Especially the junior gold mining stocks that are well-run with a quality asset that are selling at bargains below liquidation price. These companies will be tomorrows premium acquisitions once the gold price erupts and producers need them to survive.

Another example of a sector that’s suffered through a ‘destructive’ bottoming phase for years and is now in the first stages of a huge bull market is nickel. You can see the similarities it has with the gold market. And it’s very exciting.

 

The long-term play is simple: gold demand is growing worldwide, and supply is decreasing.

Take advantage of the opportunity at hand.

Be like the Austrian Schumpeter and use the creative destruction to your advantage..

Comments

Jack4952 Bam_Man Fri, 04/27/2018 - 04:34 Permalink

Because the price is RIGGED - just as for all commodities.

How? A central bank (the FED) buys, then sells a large amount of gold ETFs ("paper gold") at a loss. (Since the FED can print all the money it wants "out of thin air", this "loss" is of NO consequence to the FED.) The result is that the price of gold ETFs falls. And since the price of PHYSICAL GOLD is set by the price of gold ETFs, the price of physical gold falls also.

The first few times buyers place large orders for physical gold for immediate delivery AND that physical gold is NOT delivered, THEN people will realize that gold ETFs are worthless. It is then that REAL "price discovery" for physical gold will occur!!!

P.S. There have already been several instances of "non-delivery" of physical gold. But, according to Bill Holter (one of the largest gold bullion dealers in the world; and partner of Jim Sinclair) the buyers usually agree to a DELAY in delivery. (That's better than getting paid off in U.S. Dollars!!!!) Holter added that physical gold in large amounts is almost impossible to purchase anywhere EXCEPT in the West, especially the United States. But he noted that he has to go to numerous sources (instead of 1 or 2) to buy this physical gold for his clients; and that DELAYS are now the norm.

In reply to by Bam_Man

lunaticfringe radbug Fri, 04/27/2018 - 09:15 Permalink

I don't think that happens for a couple of reasons. 1. It is difficult to precisely identify the richest supply and 2. Depending on the ore body and the type of mining you often can't churn thru the good stuff without swallowing cheaper grades. Miners lose a helluva lot more money thru hedging and streaming deals- often it isn't what you make that matters- it's what you don't lose that counts.

In reply to by radbug

bunkers Thu, 04/26/2018 - 17:25 Permalink

Patriot Nurse, on YouTube and www,patriotnurse.com, says American conservatives are weak cowards and are The Walking Dead, I assume, because of our inaction and laziness.

AlphaSeraph Pearson365 Thu, 04/26/2018 - 18:43 Permalink

When I was in my early 20's (I'm 30 now) I started to really explore and understand the world of finance and the role gold has had throughout history. At that point gold was just under 900$ CAD, with CAD/USD at parity give or take depending on the day. I started buying (peasantry amounts) of silver at that time. Gold closed at 1695CAD today. That's with an epic meltdown crash thrown in the mix. Here we are 8 years later and gold is nearly double the price and it seems poised for a continued march upwards (albeit as you pointed out, slowly).

Gold will be the tortoise for a long time. Then all of a sudden it will be the hare.

If you want to speculate for big money profits, find some good miners and hold onto your hat. If you want wealth preservation and a methodical long standing accumulation of wealth, just buy the gold/silver and forget the day to day noise. The system inflates by design, it's not rocket science.

In reply to by Pearson365

platyops Fri, 04/27/2018 - 02:39 Permalink

I buy gold not to make a profit. I buy gold to hold onto what little wealth I have.

I go to estate sales every weekend and have done so for many years. One thing I have noticed and it was a revelation to me:

 
Ten years ago it was very common to find one or two gold coins at any given estate sale. Now I have not seen one, even one gold coin for sale in TEN YEARS! That to me is an indicator.

Buy gold and hold it to preserve your wealth not to trade daily and make a profit or loss. Maybe it will be your kids that finally get to enjoy the stored up worth but maybe you will enjoy it sooner. Either way buy gold and keep it well hidden. My small stack sadly went down in a boating accident last year. Oh well.

Food Loaf Junkie Jungle Jim Fri, 04/27/2018 - 06:21 Permalink

No one said to put ALL your assets into gold, or silver, or bitcoin, or anything else.  To impoverish your self to the point that you cannot eat or pay bills would appear to be irrational. As to the short term price volatility, well that is just part of the game.  long term it should hold it's value.  Buying anything at a temporary top is a path to loss.

In reply to by Jungle Jim

Jungle Jim Fri, 04/27/2018 - 04:49 Permalink

I am old, and I don't have any kids. I just wonder how I'm going to go on living. How I'm gong to pay the rent. Keep the electricity on. I'm tired of hearing about all these far-off science fiction future scenarios.

Chief Joesph Fri, 04/27/2018 - 11:47 Permalink

  Here is what has been happening over the past 14 years.  http://www.usagold.com/reference/globalgoldproduction.html.

However, I think the Chinese figures are suspect, because I know that in 2013, 2014, and 2015, China had bought 1/2 the world's gold production for those years.  So, China has far more gold than what is being reported.  For that matter, you can buy gold in most Chinese banks, and its usually on display too.  In contrast, what American bank can you think of who sells gold directly? Zero!

Also, if China did not have a sizable reserve, why is it the Chinese are backing their petro-yuan with gold?  Why are many countries (outside the U.S.), are lining up to replace their dollar holdings to make trade in petro-yuans? For two reasons:  

1.  Gold is universally accepted

2. The petro-yuan has something tangible backing it, the petro-dollar has nothing tangible backing it at all, except its demand in trade.

   

ogretown Fri, 04/27/2018 - 12:17 Permalink

Setting the nonsense of the Grand Canyon aside...a better study is the thousands of kilo's that are making it out of south-eastern Venezuela every month.  All illegally mined and deeply discounted, being traded for foodstuff and medicine. 

There is a bustling underground gold rush going on, and not just in Venezuela.