by Steve St. Angelo, SRSRocco Report:
Something BIG happened in the gold market this year and very few investors understand the significance. While precious metal analysts debate whether the huge gold rally since the beginning of the year is sustainable, I am beginning to wonder if certain indicators are no longer reliable.
I’ll get into that in a moment, but wanted to share a few things as it pertains to my views on the precious metals.
A few weeks ago I was able to get away on a short vacation with my family. We stayed at a nice Bed & Breakfast and at night I enjoyed listening to several different guests talking about their jobs and past-times. In my experience, I have found out that the majority of people would rather talk about themselves rather than listen to others. This doesn’t bother me at all as I get to learn more things with my mouth shut than I do with it open.
Regardless, the most interesting chat I had was with the Bread & Breakfast owner’s son. He stated to talk about the Presidential race and it moved to different aspects of the economy and finance. It happens that the son went to college to study economics, so this was a huge treat for me as I had a good idea where this would lead.
Before I could mention the subject of precious metals, my wife (sitting next to me) asked the son, “If he had a nice chunk of change to invest, what would he invest in?” I knew where my wife was going with this because she knows a lot about gold and silver due to my 15 years of boring her to death with all the details.
Anyhow, his answer was quite interesting. He said, “I would buy travel Visa’s” I thought that was an interesting answer as I have never heard of it before. He explained why he would invest in that, then I asked him what he thought about the precious metals?? His answer was, “YOU CAN’T EAT GOLD.” He did not have anything good to say about the precious metals…. LOLOL.
I didn’t find this surprising at all, as I’ve heard that KNEE-JERK response over and over from supposedly intelligent individuals. Actually the next day, I thought it might be a good idea for a promotional precious metals T-SHIRT by having on one side of the shirt printed with, YOU CAN’T EAT GOLD, and on the other side, YOU CAN’T EAT YOUR 401K.
YOU CAN’T EAT GOLD… Oh Really??
Anyhow, this is the problem with most Americans. At some point down the line they heard “YOU CAN’T EAT GOLD” from someone and they continue to regurgitate it as if it makes some sort of sense. Well, of course you can’t eat gold…. what a stupid statement. On the other hand, humans actually do actually eat a little gold. Have you heard of Goldschlager Schnapps or chocolate cake with gold leaf?
So, people have been consuming gold for quite a while. Now, the question is… who would drink little pieces of their 401K in their schnapps or draped over their birthday cake???
Anyhow, I continue to come across silly or ignorant comments about the precious metals all the time because the individual is either repeating a stupid line they heard, or the person doesn’t understand the underlying fundamentals.
For example, a reader on another website made a comment about my article on The Fundamental Reason The Silver Price Will Explode Much Higher Than Gold. He said, “Ridiculous. why don’t you writers talk about something worthwhile, like the silver basis.”
First of all, my analysis is NOT BASED on short-term forecasts. Rather, I look to the mid-longer term trends. My analysis on comparing gold and silver scrap supply versus total demand of those metals shows how much more silver is lost in the market than gold. This supply imbalance will translate into a much higher silver percentage gains in the future. I never said this was going to impact the silver price this year.
Secondly, many market indicators are becoming less reliable today than they were years ago. This is due to the manipulation of the market by the Fed and Central Banks. Furthermore, the silver or gold basis may be flawed due to precious metal market manipulation. I will discuss this shortly.
Lastly, MORE & MORE AMERICANS are finally waking up. I know this because 40% of my visitors are new EYEBALLS to my site each day. Here are the SRSrocco Report site Google Analytic stats for the past 30 days:
Of the 143,331 individuals who visited my site over the past 30 days, 57,448 were NEW visitors, while 85,863 were RETURNING. That’s a lot of new people stopping by the SRSrocco Report in a month.
As I have stated over and over, if just 1-2% more of the population moved into physical gold and silver, it would be game over. There just isn’t enough metal to go around… only a much higher prices.
Okay… let’s get back to really interesting information.
SOMETHING BIG HAPPENED IN THE GOLD MARKET
Most precious metals investors have read about the huge price move in gold and the large flows into Gold ETFs & Funds in the first six months of 2016. However, very few realize just how significant the changes have been in the gold market if we compare it to the past.
This chart is the Monthly Change of Transparent Gold Holdings from Sharelynx.com. These holdings represent Gold ETFs, Funds and Repositories, such as the Comex:
From the beginning of 2009 to the end of 2011, these total gold holdings increased approximately 45 million oz (Moz). So, as the price of gold moved up from a low of $780 at the beginning of 2009 to nearly $1,900 in September 2011, total gold holdings increased 45 Moz. Now, compare this to the massive 25 Moz increase of total gold holdings in the first half of the year as the price moved up only $300.
The significance of this present change in the gold market can be better seen in the chart below:
The average annual increase in total gold holdings during the 2009-2012 period was 15 Moz compared to 25 Moz for the first half of 2016!! If demand for gold continues as strong in the second part of the year, we could see upwards of 50 Moz move into these total gold holdings versus 45 Moz for the 2009-2012 period.
That being said, I highly doubt these Gold ETF’s, Funds and Repositories are receiving all the gold they report. Why? Well, if we look at the Gold Supply-Demand situation, the gold market will experience a large deficit for the first half of the year. According to the World Gold Council, the huge surge in Gold ETF & Fund demand caused a 151 metric ton (4.8 Moz) deficit for Q1 2016:
If we assume total Gold ETF & Fund holdings doubled to 700 metric tons (mt) in the first half of the year (they increased by 363.7 mt Q1 2016, shown in the table above), this will likely push the deficit to over 300 mt or 9 Moz for 1H 2016.
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