Here’s the wrong way to think about gold supply: “Although gold’s aboveground inventory is huge compared to current production, only a tiny fraction of this gold will usually be available for sale near the current price. Therefore, changes in mine supply can be important influences on the gold price.” I’ll now explain the right way to think about gold supply.
Whenever I point out that the supply side of the gold market consists of the entire aboveground gold inventory, which is probably somewhere between 150K tonnes and 200K tonnes, and that the gold-mining industry does no more than add about 1.5%/year to this inventory, an objection I often get is that only a tiny fraction of the aboveground inventory is available for sale at any time. This is of course true, and nobody who has a correct understanding of gold supply has ever claimed otherwise.
 I actually agree with Sinclair’s views on monetary sociopaths. Beyond that and certain dogma that rings true, it’s too much information the likes of which has frightened people into what have been incorrect positions for years.
After the now-famous WSJ post, it seemed as if a bottom had just been called in gold…
It seemed that the elements were in place for a contrarian rally if not bull market bottom. Along with negative gold items routinely appearing in the financial media and a Commitment of Traders structure that had become very bullish, gold sentiment was bleak by indicators we track in NFTRH.
My how a 6% rally with an accompanying stock market down spike have changed things…
Here is the article associated with the video, sent to me yesterday…
I won’t even go into Sinclair and his ‘same old, same old’ spiel, trotted out the minute the stock market cracked. Let’s just focus on one micro element of a case that implies gold bug sentiment is not yet where it needs to be for a real bullish stance. From the article’s comments section…
Steve (website visitor): “I used to believe in the rampant manipulation of the gold markets until i got proper information and grew up. If Gold is always manipulated to the downside, why buy it?”
Greg Hunter (website host): “Steve you grew up to be an idiot. I got “proper information” from Dr Paul Craig Roberts* who laid out an analytical case for gold manipulation.”
It’s concerning if you are a gold bug, because the bear has apparently not dug deep enough into all the bunkers to devour the most ardent holdouts.
Above we have “Dr Paul Craig Roberts”. From NFTRH 355 (very coincidentally I was reminded of this by a subscriber this morning):
Have you noticed that the bear and/or gold communities tend to make sure they call John Hussman “Doctor Hussman”, Jim Willie “Doctor Willie”, Robert McHugh “Doctor McHugh”, Chris Martenson “Doctor Martenson” and any other Ph.D. writing about markets “Doctor”, while conveniently forgetting to label the likes of “Doctor Bernanke” as such (“Helicopter Ben”)?
I don’t know about you, but when I am reading articles and I see a writer labeling someone with whom he or she agrees (and with whom they want you to agree) “Doctor” in order to convince the reader of the material’s seriousness or worthiness I think “man, that’s cheesy”.
Gold Manipulators Should be Fired for Poor Performance
Despite the huge differences between gold and all other commodities, gold is still a commodity and its US$ price is still affected by the overall trend in commodity prices. In particular, a major decline in commodity prices will naturally put downward pressure on the gold price and a major advance in commodity prices will naturally put upward pressure on the gold price. That’s why gold’s performance can be most clearly ‘seen’ by comparing it to the performances of other commodities. When this comparison is done it becomes apparent that gold is now very expensive or at least very highly-priced relative to historical levels.
As evidence I present the following chart of the gold/CRB ratio. This chart shows that relative to the basket of commodities represented by the CRB Index, gold has just made a new multi-decade high.
When I look at the above chart I can’t help but think it’s just as well that gold is being manipulated lower, because just imagine how expensive it would otherwise be.
It won’t surprise me if gold moves even higher relative to commodities in general over the coming month in parallel with an on-going flight from risk. Also, I expect the long-term upward trend in the gold/CRB ratio to continue. Lastly, it’s clear that the operators of the great gold-market price-suppression scheme have been doing a lousy job and deserve to be fired for poor performance.
[biiwii comment] It’s a promo, not an article. But a promo well worth looking into IMO. Recall, Prechter, along with only a very few others (my hand raised) caught the bottom of the 2008-2009 crash and went bullish. Now, all these years later everyone has become bullish and the market, at the least, is again wonderfully volatile.
Pandemonium in the Stock Market
This week’s stunning sell-off sent the Dow 1,000 points lower. Other markets have surprised investors lately, too:
Crude oil just fell below $40 a barrel
Gold just broke above $1160 an ounce
The U.S. dollar is enjoying the strength not seen in years
Almost every step of the way, Elliott wave price patterns have guided Elliott Wave International and its subscribers:
On July 24, EWI said to turn bullish on gold — the exact day of the intraday lows in gold and silver after four years of decline
Crude oil has followed its Elliott wave script since 1998, including the all-time high near $150 in 2008 and the more recent secondary peak — one from which oil fell below $40 a barrel this week
Wave patterns warned EWI and its subscribers of the huge declines in commodities and the huge rally in the U.S. dollar — both against nearly universal disagreement
The credit goes to the Elliott wave method. For the past 80 years, waves have warned thousands of investors like you about risks — and new opportunities! — at countless market junctures.
This week’s #1 story is the 1,000-point sell-off in the Dow. To show you what we’ve been saying about the markets, we just put together a new, free 2-page Special Report with most relevant excerpts from our flagship publications: Elliott Wave Theorist and Elliott Wave Financial Forecast.
It’s the kind of report a well-informed investor shouldn’t go without.
The Meaning of the 6-Year Low in GLD’s Bullion Inventory
At the end of the week before last the amount of physical gold held by the SPDR Gold Trust (GLD), the largest gold bullion ETF, fell to its lowest level since September-2008. What does this tell us?
In many TSI commentaries over the years and in a couple of posts at the TSI blog over the past year I’ve explained that changes in GLD’s bullion inventory are not directly related to the gold price. Neither a large rise nor a large fall in the gold price would necessarily require a change in GLD’s inventory, the reason being that as a fund that holds nothing other than gold bullion the net asset value (NAV) of a GLD share will naturally move by the same percentage amount as the gold price.
For your viewing pleasure, some pictures that readers of this site and NFTRH.com have been aware of for some time now and NFTRH subscribers are repeatedly kept aware of (whether they like it or not).
Gold is not just another metal…
Gold is not Palladium, a flipped over version of which (weekly PALL-Gold) gave us a DOWN signal months ago.
Gold is not just another commodity…
Gold is much different in its best investment environment from the things previously promoted to have been beneficial for oil…
Silver is not gold either. But it’s much closer, which makes it a sensitive component of the metallic credit spread (Hat tip, Hoye) to economic, financial and monetary events…
And of course Gold vs. US Stock market, making a move but still technically in a big picture downtrend…
Gold vs. Euro-hedged Europe…
Gold vs. Yen-hedged Japan…
Gold is none of these things, because gold does not do anything other than sit there as a solid, pretty rock that irrational humans have alternately over obsessed upon and ignored for long stretches. That is what makes it a marker or barometer. Its very lack of utility and income distribution make it the anti-asset. In that resides its value when the levered up games start to unwind.
Other than that, I have no strong opinions on gold.
Here are ten basic gold-market realities that are either unknown or ignored by many gold ‘experts’.
Supply always equals demand, with the price changing to maintain the equivalence. In this respect the gold market is no different from any other market that clears, but it’s incredible how often comments like “demand is increasing relative to supply” appear in gold-related articles.
The supply of gold is the total aboveground gold inventory, which is currently somewhere in the 150K-200K tonne range. Mining’s contribution is to increase the aboveground inventory by about 1.5% each year. An implication is that there should never be a shortage of gold.
Although supply always equals demand, the price of gold moves due to sellers being more motivated than buyers or the other way around. Moreover, the change in price is the only reliable indicator of whether the demand side (the buyers) or the supply side (the sellers) have the greater urgency. An implication is that if the price declines over a period then we know, with 100% certainty, that during this period sellers were more motivated (had greater urgency) than buyers.
No useful information about past or future price movements can be obtained by counting-up the amount of gold bought/sold in different parts of the gold market or different parts of the world. An implication is that the supply/demand analyses put out by GFMS and used by the World Gold Council are generally useless in terms of explaining past price moves and assessing future price prospects.
Demand for physical gold cannot be satisfied by “paper gold”.
Prices in the physical and paper (futures) markets are linked by arbitrage trading. For example, if speculative selling in the futures market drives the futures price down relative to the physical (or cash) price by a sufficient amount then arbitrage traders will profit by selling the physical and buying the futures, and if speculative buying in the futures market drives the futures price up relative to the physical (or cash) price by a sufficient amount then arbitrage traders will profit by selling the futures and buying the physical.
The change in the spread between the cash price and the futures price is the only reliable indicator of whether a price change was driven by the cash/physical market or the paper/futures market.
In a world where US$ interest rates are much lower than usual, the difference between the price of gold in the cash market and the price of gold for future delivery will usually be much smaller than usual. In particular, when the T-Bill yield is close to zero, as is the case today, there will typically be very little difference between the spot price of gold and the price for delivery in a few months. An implication is that in the current financial environment the occasional drift by gold into “backwardation” (the futures price lower than the spot price) will not be anywhere near as significant as it would be under more normal interest-rate conditions.
Major trends in the US$ gold price are determined by changes in the general level of confidence in the Fed and the US economy. An implication is that major price trends have nothing to do with changes in jewellery demand, mine supply, scrap supply, central bank buying/selling, and the amounts of gold being imported by India and China.
The amount of gold in COMEX warehouses and the inventories of gold ETFs follow the major price trend, meaning that changes in these high-profile inventories are effects, not causes, of changes in the gold price.
Gold is very different from all other commodities. This is due to physical characteristics that caused it to be money for thousands of years and led to its aboveground supply becoming orders of magnitude greater than its annual production*. However, despite the huge size of its existing above ground supply relative to the rate at which new supply is created, that is, despite its massive stocks-to-flow ratio, gold is still a commodity and its US$ price is still affected by the overall trend in commodity prices. In particular, a major decline in commodity prices will naturally put downward pressure on the gold price and a major advance in commodity prices will naturally put upward pressure on the gold price. That’s why gold’s performance can be most clearly ‘seen’ by comparing it to the performances of other commodities, with the most appropriate comparison being with ‘non-monetary’ metals**. Such a comparison reveals that gold has performed exactly as a safe haven should have performed given the economic and financial-market backdrops.
Right here at 8:30 AM US Eastern time, in the midst of a precious metals bounce that we (NFTRH) projected due to sentiment, price/volume dynamics (in less fancy terms, the market puke in mid-July) and especially the bullish CoT alignments for gold and silver, I state to you that there is still something unhealthy going on in the gold sector from a psychological standpoint.
This does not even include some still negative macro fundamentals that have not pivoted yet to join the improving sector fundamentals. This is pure sentiment. We have no way of knowing for sure whether or not a new bull market is starting right now and that is why we projected it to be a bounce, until all fundamental and technical ducks line up and start quacking. Speaking of quacks…
In reviewing Rubicon Minerals’ website (a stock I do not own, yet anyway), I came across this video of RBY’s first gold pour and just found myself laughing. I am not sure why it struck me as funny, but it had something to do with the guy trying to lug the first gold bar across the floor over to the something-or-other-ator with a large set of tongs.
Ah gold miners, waddling along lugging a heavy rock. No, this is surely not Google… or Alphabet or whatever.
From a post on April 2: “Randgold Resources (GOLD) is one of the few senior gold miners I am able to list in NFTRH as a miner of relative quality.”
Nothing has changed since then. Beyond Rangold in particular, this is a very interesting interview. There is a lot of information surrounding the gold mining industry now and the thing that is going to save the industry, along with individual miners who, like Rangold, decide to really run operations as a serious business, is the global macro backdrop.
With gold out performing crude oil, we have one cost-reduction building itself in structurally. There are other macro issues that need to come in line. But those who obsess on the gold sector as if it is the only one on the planet need to really sharpen their analytical pencils going forward because the macro fundamental picture is changing and the mainstream media – this excellent Bloomberg video excepted – is not going to guide the way accurately. In other words, Team Gold “Community” needs to make sure it does not get juked right out of its cleats at the wrong moment.
CEO Mark Bristow: “…just sharpening the pencils because things are a little tougher.”