Over the life of this blog, I've often repeated a factoid I heard a few years ago that "China isn't buying gold; they're buying gold mines." Today, I read an article on the precious metals markets "Is Now the Time to 'Back Up The Truck'" by Peter Degraaf which made this amazing statement:
This chart courtesy @KoosJansen shows the amount of physical gold withdrawn from the Shanghai Exchange (red bars), compared to the total amount of gold produced worldwide (yellow background). During a number of months in 2013 the Chinese bought every ounce that the mines of the world were producing.You read that right. They bought every ounce of gold produced in the world. Linked to this report, which shows world gold production in yellow, and SGE physical delivery in red. They bought more whenever the red bar is taller than the yellow.
The societal factors that combine to make the future look inflationary (at best) also stand to benefit gold. As I'm sure you've read lately, the number of people not in the US labor force has reached an all-time high of 91.8 million. This will keep the pressure up for more transfer payments and more monetary stimulus. More dollars bidding for every real asset: food, oil, copper, or steel, will inflate the prices. Expect the precious metals to follow.
Degraaf's article is full of technical analysis and impressive charts, and you should read the whole thing, but perhaps the most ominous chart in it is one of COMEX (Commodity Exchange) gold holdings. Since the end of 2009, it has spent most of its time in the range of 1.8 to 3.0 million ounces of gold. That supply has been dwindling since last spring and the last value reported in 2013 is just north of 416,000 ounces. As he points out, "When this number nears zero, the COMEX will declare ‘force majeure’, and a number of traders who thought they owned gold bullion will have to settle for pieces of paper." These people will not be happy.
“But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The Crack- Up-Boom appears. Everybody is anxious to swap their money against "real" goods, whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.” ….…Ludwig von Mises.
*Everyone over a certain age, perhaps 50, certainly over 55, will remember that phrase!