Why A Gold Supply Crisis Looms?
Jeff Nielson: The World Gold Council recently released its second quarter statistics on gold “demand and supply trends”. For those not familiar with the WGC, it is an “industry trade group” composed of large-cap gold miners who love bankers.
How much do these mining companies love bankers? So much that they allow the bankers to keep all the records for their sector, and pretty much do all of their of their promotion to the world. It is the WGC which elevated two private “consultancies” (of bankers) – GFMS and the CPM Group – to the status of quasi-official record-keepers for the entire global gold (and silver) industry.
It would be problematic at best for the gold industry to allow itself to be almost entirely represented by a “profession” now known only for its rampant fraud. However, given the known hatred of the banking community toward gold and silver, and their relentless attacks on both the bullion market and the miners themselves; it’s almost beyond comprehension that the world’s largest gold miners choose bankers as their spokesmen.
I’ve already exposed the devious/perverse manner in which these consultancies produce phony inventory numbers in the silver market. In the upside-down world of these “record-keepers”, when someone purchases an ounce of silver from a silver-ETF (and thus takes that ounce of silver off of the market), the CPM Group adds another ounce to total inventories.
In other words, if silver investors were to buy-up every ounce of silver currently available in the world (via silver-ETF’s), global silver inventories would supposedly double, while if silver-ETF holders were to sell all their holdings it would (apparently) collapse inventories.
GFMS, the authors of this Q2 gold report are technically no longer “bankers”, since they have been bought out by the Thompson media oligopoly; one of a handful of companies who have a complete choke-hold on the world’s entire English-speaking media. When it comes to the data they produce, the esteemed John Embry of Sprott Asset Management was blunt in a recent interview:
“Those guys have been providing misinformation for years…[They] basically churn out negative gold news constantly and I would ignore them.”
While Mr. Embry pointed to several historical examples to emphasize his point, I’m going to focus on what they’re currently saying about the sector to make the same point.
If we look at the WGC (GFMS) headlines for Q2, it’s pretty straightforward. Gold demand was down 7%; gold supply was down 6%. Looks pretty even, with perhaps a slightly bearish bias. Right? Wrong.
We don’t even get to the end of the first paragraph before we begin to see the ‘slipperiness’ of these numbers. We note that expressed in dollar figures that gold demand was only down about 1%. So we immediately see the following dynamic: a 1% drop in (sales) demand – virtually no decline at all – is accompanied by a 6% drop in supply.
In other words, based upon GFMS’ own numbers we see the decidedly bullish scenario of a market which can only be kept in balance if accompanied by steadily rising prices – a markedly different picture than what was presented in the headlines, and entirely different than what GFMS asserts in its analysis in talking about “The lack of a clear price trend…” When a market can only be kept in balance with steadily rising prices, that certainly looks like “a clear trend” to me.
Dig deeper into the numbers and we find that:
…[investment] demand is also heavily-skewed by demand in India and China…excluding them from the total data gives a notably different result: a 16% year-on-year increase in demand to 195.2. Outside of these two markets, investment demand declined in only four countries [in the entire world].
When it comes to China, what we apparently witnessed was a mere pause in demand, brought about by the long sideways movement in prices. In fact what we have seen with Chinese gold-buyers is that they are encouraged to buy with rising prices, and since prices must rise to offset declining supply; it’s inevitable that Chinese buyers will soon leap back into the market.
With India, we had a large coordinated manipulation in the value of the Indian rupee lower, causing the price of gold in rupees to soar. Unlike the Chinese, Indian buyers are notoriously price-conscious, thus they too can be expected to move back into the market in much larger numbers – since the devaluation of the rupee appears to be at an end.
Meanwhile, GFMS acknowledges the explosive growth in central bank purchases:
The second quarter was another period of significant purchasing by official sector institutions, with demand amounting to 157.5 tonnes. This was a record quarter for central bank buying…
So what we see is the bankers ‘sitting on the market’ to restrain demand (along with a little currency-manipulation in India), and then jumping into the market to swap their own paper for gold at the fastest rate on record. However, it’s when we look to the all important supply-side that the half-truths of GFMS and the WGC are most glaring.
Despite representing the world’s industry trade group of miners, apparently no one at GFMS actually knows anything about the gold-mining industry. If they did, they would have noted that the miners are in the midst of their second, severe depression in five years – in the midst of the longest/strongest bull-market in history.
Yet, incredibly, after noting that net mine-supply has now actually started to decline, we have these propagandists stating:
The recent growth in mine production stalled during the second quarter of this year as recent increases in supply from new operations reached a plateau. Mine production is likely to remain in a consolidation phase for the remainder of 2012 ahead of a further raft of new operations, scheduled to come online next year.
Gold mine production was further constrained by a combination of adverse weather conditions, production interruptions at a number of operations and slower ramping up of production at a number of mines…
Apparently GFMS is capable of seeing anything and everything which affects mine supply – except the severe depression currently gripping the entire mining industry. I wonder why that is? Could it have anything to do with the fact that the current “depression” being experienced by these gold miners is entirely due to the extreme/rampant manipulation of the share prices of these miners by the banking cabal?
How else do we explain the share prices of these miners collapsing by well over 50% (across the board), in a bull market which requires constantly rising prices merely to maintain equilibrium?
Remaining willfully blind to the banker-created depression in this sector, we have GFMS (and the WGC) predicting a rebound in mine supply next year because of “a further raft of operations scheduled to come online next year.” These propagandists have the audacity to make that assertion immediately before noting that currently all project-development is running well behind schedule – due to the severe depression that is completely invisible to GFMS.
In fact, with the junior miners who are the life-blood of the industry, and responsible for well over 90% of all new gold deposits discovered in the world; it would take at least a year of strongly rising gold prices to break through the rampant share-price manipulation of the banking cabal so that these companies can properly function again. In other words, the implication of GFMS that these miners can simply “turn on” new supply like flicking a switch is totally opposite to the realities of mining; meaning that this consultant hired to represent the world’s leading gold miners either knows nothing about this industry or is being intentionally misleading with its analysis.
The half-truths continue when we come to the only other component of supply “scrap sales”. Again, we have GFMS noting that scrap sales have plummeted, and then immediately implying that those sales will surge the moment that prices start rising. In fact the truth is precisely opposite to what is being implied.
What we have seen over the past 10 years (and last 5 years in particular) is the transfer of vast amounts of the world’s total gold stockpiles from “weak hands” to “strong hands”. We see this inexorable trend on display around the world, but perhaps epitomized best with the following two anecdotes.
In Portugal, we recently received a media report that ordinary Portuguese residents have been entirely cleaned-out of all their own gold holdings – forced to pawn-off “the family jewelry”; as the fraudulent manipulation of most of Europe’s debt markets (by bankers) has thrown many of Europe’s economies into severe depression. These people aren’t going to start “selling gold” as soon as prices heat-up, because they have nothing left to sell. Obviously a similar dynamic exists in Greece, Spain, Italy, Ireland, and perhaps even GFMS’ own home base: the UK.
Then we have the world’s central banks, gobbling up the world’s gold by the hundreds of tons, in anticipation of their own, worthless, fiat-paper currencies going to zero. Obviously these institutions are not going to be selling their gold onto the scrap market…at any price. Thus as we appear to be on the brink of a genuine supply-crisis in the gold sector, we have GFMS (and the WGC itself) playing the role of Nero – and fiddling their propaganda while the sector burns.
Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada www.bullionbullscanada.com. He has a personal background in law and economics. Bullion Bulls Canada provides general macro-economic and political commentary, since the precious metals markets are among the most complex (and misunderstood) in the world.
Bullion Bulls Canada also provides basic coverage of Canadian precious metals mining companies. Canada is the global leader in mining exploration, and Canadian-listed mining companies (on the Toronto Stock Exchange and Venture Exchange) are responsible for the majority of the world’s most-promising discoveries.