FacebookTwitterGoogle+RedditEmail

Unintended Consequences Are Increasing World Demand for Gold

by CHRIS MARTENSON

With the financial experts claiming, some gleefully, that gold has “lost its safe haven status” in the aftermath of its biggest tumble in 30 years, many commentators  thought (hoped?) that the dramatic price drop would steer people away from gold ownership. To my eyes, the past week has all the earmarks of a high-gloss propaganda campaign complete with well-placed anti-gold stories in the media and the careful use of language aimed at sowing doubt about gold’s ability to be a store of wealth.

But for those who consider gold a store of value, the recent gold slam is a gift: an invitation to purchase more sound money with fewer units of paper currency. In other words, a sweet deal.  Gold and silver on sale and the world is taking advantage.

As predicted last Friday, I wrote, “[k]nowing the lower prices will only exacerbate this West-to-East flow [of gold], I therefore thought that the bullion banks and central banks would not have dared push that dynamic any further.”

Well, by all accounts, the flow of gold from West to East is now accelerating.

Gold Rout Heralds ‘Hot’ Indian Wedding Jewelry Season

Apr 16, 2013

Bullion tumbled 9.1 percent yesterday, the biggest loss since 1983, and that may make the precious metal more affordable to Indians, said Mehul Choksi, chief executive officer of Gitanjali, the nation’s biggest retailer of jewelry and diamonds by sales. The plunge has already revived interest among retail buyers, said Rajesh Mehta, chairman of Rajesh Exports Ltd.

“The season is very hot for buying” with weddings and other auspicious dates coming up, Choksi said. “The decline will be positive for jewelry as there will be a pick-up in demand because affordability will increase. Volumes will increase.”

“We rushed to buy as soon as we saw prices fall so much and decided to buy jewelry early for our daughter’s wedding in January,” said Blossom D’souza, while browsing through a selection of bangles in a jewelry store in Mumbai’s Chira Bazaar area. “Now we can buy more gold within our budget.”

Doh! Unintended consequences are piling up already, as people in India gleefully accumulate more gold at lower prices.

And this, regarding Australia:

The Perth Mint reports that retail customers are increasing purchases at a record rate even as gold slumps to a 21 month low.  As the experts were proclaiming the “Death of Gold”, the Perth Mint website recorded the highest activity of the year and one of the best days of the past year.

Bargain prices on gold and silver have greatly increased the demand for physical gold and silver by the public.  Demand for gold coins have [sic] skyrocketed with sales of Australian gold bullion coins increasing by 48% in the first quarter over the comparable prior year period.

(Source)

A couple of mainstream media reports linked the gold slam to increased selling by Japanese investors, those ideas turned out to be either speculative, premature, or both:

As global price slumps, “Abenomics” risks drive Japan gold bugs

Apr 16, 2013

(Reuters) – When he woke up to news of a collapse in gold prices, Yujiro Yamashita, 63, made his way to Tokyo’s posh Ginza district to buy the precious metal for the first time in 20 years.

Yamashita and other contrarian, individual Japanese investors understand that gold is a volatile investment, but say that buying the precious metal is better than the alternatives.

A week ago, as the yen-denominated price neared a new peak, jewelry stores and gold merchants across Japan saw long lines of mostly older Japanese looking to cash in on unwanted jewelry and other items that they had held for years.

But on Tuesday, buyers outnumbered sellers by a wide margin. At Ginza Tanaka, the headquarters shop of Tanaka Holdings, gold buyers waited for as long as three hours for a chance to complete a transaction.

Nearby at Ginza SGC, a gold merchant, buyers had taken about 6 kg (13 lbs) of gold home by early afternoon on Tuesday. In one case, a 60-year-old man, who asked not to be identified, walked out of the store with 500 grams of gold for about 2.2 million yen ($22,500).

Meanwhile, the Chinese and Thai, too, are rushing to buy gold as a consequence of the new, lower gold prices, with high sales volumes and shortages being widely reported.

So this is a fairly large story that can be summarized in basic Econ 101 terms: Supply, demand, and prices are all interrelated.  Drop prices and demand increases, which then lowers supply.

In the U.S., all of the dealers I talk to are reporting huge demand and brisk buying. Silver in any form is quite hard to come by unless you want to pay premiums of 20%+ per ounce above spot price. Delivery times are 5 to 6 weeks out now that’s an unusual situation.  If this recent slam was designed to scare people away from gold, it did not have that desired outcome; in fact, just the opposite.

To Make Matters Worse

There were numerous oddities in the timing of the gold and silver slam of the past week, and among them were two notable developments in the supply chain. Recall that the gold and silver carnage began on a Friday morning (4/12/13).

The Wednesday prior to that fateful Friday morning, one wall of the Bingham Canyon mine began to shift more rapidly. So they took personnel safety precautions, moved construction equipment out of the way, and prepared for a major ground slide event. At 9:30 PM on Wednesday, that wall gave way, sloughing tens of millions of cubic meters of earth into the operating pit:

Bingham Canyon produces some 400,000 ounces of gold and nearly 3 million ounces of silver on a yearly basis as byproducts of copper mining. It will be several years before the mine is back up to full operating capacity.

Normally, the news of a major mine being taken off line is a bullish sign for the associated commodity, but not in this case. On that same Wednesday gold and silver both went down in price. So the market completely discounted the news.

Coincidentally, also on Wednesday (4/10/13), the Chilean supreme court suspended Barrick Gold’s Pascua Lama mine over a variety of environmental and social concerns, and that project got relegated to years of litigation. This is a huge mine project with probable reserves of over 18 million ounces of gold and 700 million ounces of silver.  It is now completely halted and will remain so as lawyers battle things out in a process that most think will be several years long.

So current and future production of gold and silver took hits last week right before the big price drops. Perhaps this is just a very strange set of related events, but the incongruity and timing cause me to lean towards what Robert Di Niro said in the spy thriller Ronin: There is no such thing as coincidence.

At any rate, whatever the case may be coincidence or not, future supply of gold and silver will be lower than we thought as recently as Tuesday of last week.

Something Is Burning

There has been a lot of speculation about why gold was hit so hard. The theories range from it being “just one of those things” (i.e., normal market behavior) to an orchestrated attack to drive down the price of bullion. I happen to fall into that latter camp and summarized my thinking in why gold is being attacked in yesterday’s report, This Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks.

An important question to ask in the face of such attacks is Qui bono? Who benefits from dropping the price so dramatically and breaking faith in the precious metals as a safe haven?

The Internet is swirling these days with rumors of a near inventory failure at the LBMA (London Bullion Market Association), a ‘too big to fail bank’ of a large sovereign country in Europe that’s teetering, that needed protection against its derivative exposure. One of these could be true perhaps all of them might be; I honestly don’t know yet. We have imperfect vision into markets these days, and these are each developments that the central powers would be doing their utmost to shield from our view.

But there’s certainly a lot of smoke in the air surrounding the precious metals, and as the adage goes, where there’s smoke, there’s fire.

In Part II: Why There May Be a Lot Less Gold Than We Realize, we explore a particularly interesting possible reason for the suppression of the precious metals. A recent report issued by Sprott Asset Management calculates that the U.S. has silently exported a massive amount of its gold reserves over the past two decades.

If accurate, it puts the long-term manipulation of the gold and silver markets into context. And it gives a reason for why breaking faith in the precious metals at this time would be an important objective.

Click here to read Part II of this report (free executive summary; enrollment required for full access).

CHRIS MARTENSON writes for PeakProsperity.com.

Chris Martenson writes for Peak Prosperity.

Weekend Edition
February 12-14, 2016
Andrew Levine
What Next in the War on Clintonism?
Jeffrey St. Clair
A Comedy of Terrors: When in Doubt, Bomb Syria
Ismael Hossein-Zadeh – Anthony A. Gabb
Financial Oligarchy vs. Feudal Aristocracy
Paul Street
When Plan A Meets Plan B: Talking Politics and Revolution with the Green Party’s Jill Stein
Rob Urie
The (Political) Season of Our Discontent
Pepe Escobar
It Takes a Greek to Save Europa
Gerald Sussman
Why Hillary Clinton Spells Democratic Party Defeat
Carol Norris
What Do Hillary’s Women Want? A Psychologist on the Clinton Campaign’s Women’s Club Strategy
Robert Fantina
The U.S. Election: Any Good News for Palestine?
Linda Pentz Gunter
Radioactive Handouts: the Nuclear Subsidies Buried Inside Obama’s “Clean” Energy Budget
Michael Welton
Lenin, Putin and Me
Manuel García, Jr.
Fire in the Hole: Bernie and the Cracks in the Neo-Liberal Lid
Thomas Stephens
The Flint River Lead Poisoning Catastrophe in Historical Perspective
David Rosen
When Trump Confronted a Transgender Beauty
Will Parrish
Cap and Clear-Cut
Victor Grossman
Coming Cutthroats and Parting Pirates
Ben Terrall
Raw Deals: Challenging the Sharing Economy
David Yearsley
Beyoncé’s Super Bowl Formation: Form-Fitting Uniforms of Revolution and Commerce
David Mattson
Divvying Up the Dead: Grizzly Bears in a Post-ESA World
Matthew Stevenson
Confessions of a Primary Insider
Jeff Mackler
Friedrichs v. U.S. Public Employee Unions
Franklin Lamb
Notes From Tehran: Trump, the Iranian Elections and the End of Sanctions
Pete Dolack
More Unemployment and Less Security
Christopher Brauchli
The Cruzifiction of Michael Wayne Haley
Bill Quigley
Law on the Margins: a Profile of Social Justice Lawyer Chaumtoli Huq
Uri Avnery
A Lady With a Smile
Katja Kipping
The Opposite of Transparency: What I Didn’t Read in the TIPP Reading Room
B. R. Gowani
Hellish Woman: ISIS’s Granny Endorses Hillary
Kent Paterson
The Futures of Whales and Humans in Mexico
Michael Howard
Hollywood’s Grotesque Animal Abuse
James Heddle
Why the Current Nuclear Showdown in California Should Matter to You
Steven Gorelick
Branding Tradition: a Bittersweet Tale of Capitalism at Work
Nozomi Hayase
Assange’s UN Victory and Redemption of the West
Patrick Bond
World Bank Punches South Africa’s Poor, by Ignoring the Rich
Mel Gurtov
Is US-Russia Engagement Still Possible?
Dan Bacher
Governor Jerry Brown Receives Cold, Dead Fish Award Four Years In A Row
Wolfgang Lieberknecht
Fighting and Protecting Refugees
Jennifer Matsui
Doglegs, An Unforgettable Film
Soud Sharabani
Israeli Myths: An Interview with Ramzy Baroud
Terry Simons
Bernie? Why Not?
Missy Comley Beattie
When Thoughtful People Think Illogically
Christy Rodgers
Everywhere is War: Luke Mogelson’s These Heroic, Happy Dead: Stories
Ron Jacobs
Springsteen: Rockin’ the House in Albany, NY
Barbara Nimri Aziz
“The Martian”: This Heroism is for Chinese Viewers Too
Charles R. Larson
No Brainers: When Hitler Took Cocaine and Lenin Lost His Brain
FacebookTwitterGoogle+RedditEmail