Unintended Consequences Are Increasing World Demand for Gold

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.

I predicted this last Friday, when 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.


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:

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 cui 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).

This is a companion discussion topic for the original entry at https://peakprosperity.com/unintended-consequences-are-increasing-world-demand-for-gold/

…the more I believe the intent behind the smackdown was primarily psychological, hoping to weaken investor sentiment for PM. It appears that this has had the opposite effect, and demand has only spiked as a result. PM are getting tremendous media exposure right now, and as more people tune in to the situation, I think we will see a shift in mindset. In my own small city I have noted increasing signage "we buy gold and silver" - I have never seen this kind of thing before. It is definitely getting interesting…


I visted the Bingham Canyon Mine in 2011 and took the below video. It should help give you an appreciation of the scale of operations there:

Note the large number of ore-carrying trucks rambling everywhere. They were tirelessly parading by the entire time I was at the mine, which by the way was on Easter Sunday (how much busier was the mine on non-holiday weekdays?)

And while they look small in the video compared to the size of the mining pit, these trucks are HUGE! He's a picture of my daugthers standing next to one of the truck tires:

In addition to the huge dimensions of the pit, I was struck by how much energy was being consumed before my eyes. Not just by the trucks and the diggers, but in the refining process, as well. The ore being mined looks like simple rocks, the copper and other metals within in the ore are in such trace amounts that you can't see them visibily. A tremendous amount of energy is expended to coax out and separate the desired metals in commercial form.

What I take from this is that it's going to take a LOT of additional energy to get to the remaining ore now buried under the landslide. The stoppage in production at Bingham Canyon, plus the incremental energy now needed, can only put upwards pressure on the price of domestic silver.

I agree, There has been an increase in the number of the "We buy gold and silver" brigade around my way just recently, and that was before the smack down in price. Always a good sign.

Just went to my local coin dealer. He sold me a small amount of gold for a reasonable price above spot. He is not selling any silver besides collector coins. What silver he does have is not being sold because of what he paid for it. In over thirty years in the coin business he has never seen anything like it! 
More info. Have you tried to buy a mid grade safe lately? In my area they have been on back order for over five months.

More info. Have you tried to buy a mid grade safe lately? In my area they have been on back order for over five months.
This is what we call a, "leading indicator"   

…it's the pants of the financial industry! Liar liar pants on fire!
"If you are holding physical metals, they are still worth roughly the same as they were before the fake crash"  http://www.kitco.com/ind/Hamlin/20130418.html

My son-in-law works for Rio Tinto the company that owns the Bingham Canyon Mine.  He has told us that there is much more damage to equipment and infastructure than is being reported.  They currently are still producing metals at the smelter but only for another few weeks.  After that they are expecting to be at only 50% capacity the rest of this year.  That is a lot of copper, gold and silver that are not going to be coming out of the ground this year.
I work for a engineering company that specifically designs gold/silver processing plants.  We have been very busy over the last year.  With the price of gold as high as it was, many low grade mines could spend the capital to go into production.  There is a point that if the price goes to low many of these plants will be shut down, it will no longer be profitable to mine such low grade ore.  This will further enhance the shortage spoken of.

If you are a Gold and Silver advocate, you will appreciate Dave Kranzler's Golden Truth blog,  Excerpts from today's blog;


Something most unusual happened yesterday - in the aftermath of the one of the most brutal one-day price drops in gold that I've ever witnessed  -  a paper/futures driven sell-off, mind you - U.S. retail buyers bought 63,500 ozs of gold American eagles from the U.S. mint.  This is by far a one-day record.   This is nearly 2 tonnes of gold purchased in one day by retail buyers.  A staggering amount.  That's 20% of the amount the falsely-reported gold sale from the Cyprus Central Bank.   What's most stunning about this is that historically, gold/silver buyers have scattered like frightened deer when gold undergoes a big price drop.  But this time was different…

The unintended consequence of all this banking system and corporate fraud that is going unprosecuted by the Obama Administration - contrary to what he promised to do in 2008 when he was campaigning - is that a larger cross-section of the American public are starting to catch on to the game being played by the banking and political elite.  Yesterday's gold sales by the mint is proof.


Any thoughts on a controlled price suppression during a manic buying phase of PM's? Can they suppress the price no matter what condition the market presents?hmmm…

Local coin shop just shut down for the day.  Sold out of Ag & Au.  Owner is "heading off to the bar" (sic). 

Some break down bull markets into 3 phases:
The first phase is the accumulation phase.  The item is dirt cheap and only smart money is buying.  The public has no awareness at this point.

The second phase is the awareness phase.  Seasoned professionals buy and the public becomes aware.

The third and final phase is the speculative phase.  The public gets involved and panic buying sets in.  Prices go exponential.

I'm not a chart guy, but I feel that this most recent knock-down will usher in the third and final phase. Many folks at work have mentioned gold and silver to me, so their financial involvement is right around the corner.

What I keep telling myself is that PM's are how we safely transport today's Monopoly money to tomorrow's productive assets.  I'm more focused on tomorrow than I am on today.

I had dinner last night with 2 old colleagues that I hadn't seen in a couple of years. We spent the first part of the evening on the subject of gold. They asked me if I am still a "gold bug" and how I felt about the bubble bursting … after a brief soliloquy of my observations, the conversation meandered to other topics. It circled back to gold/silver (not due to me) at least 3 separate times. They're not as optimistic as they used to be. The economic situations in euro-land, Japan, and here in the US have them concerned. Both primarily get their news from MSM and NPR. Both think shale oil will make us energy independent. They're split on global warming consequences. Both think the government should stimulate more to get us out of this recession.
At the end of the evening, I asked them if they were interested in buying gold for themselves. Both responded with a resounding "NO!" Then, I reminded them of a prediction I made in early 2009. I predicted that neither of them would be interested in buying gold until it was too late to get it. [Nervous laughter]

That's good news. It's not too late. (At least, if you believe in my predictive powers.)


1st, guns and ammo.
2nd, precious metals.

Up next, food.

I see the buying of PM down here by retail as an encouraging sign.  If "the world" sees this as good stuff at a discount rather than buying the story "the gold bull market is dead", it could be a pretty lethal bounceback.
I would encourage everyone to not only find the "good gold news" but rather the "bad" gold news too.  Try and smoke out the truth from the barrage of "goldbug cheerleaders" articles as well as the MSM's well-spun story suggesting gold is finished as an investment vehicle.  I don't trust either of them.  We should also tune out the LBMA failure rumors, manipulation stories, and the like.  If those other central banks and real people around the world treat this like a sale, the futures markets will respond soon enough.  They have no choice.

I really like the stories from individuals here who have gone to coin stores and found them empty of gold.  That's the kind of stuff I like to hear.  Not articles from kitco or KWN, which is all gold all the time.

Some other thoughts: Soros sold his gold back in December, I think it was.  He told people a few months later.  When he starts buying, he's not going to tell anyone.  And he'll do it slowly, so he won't move price too dramatically.  But his buying will be visible in the price charts.  Dips will be bought, rather than rallies sold.

Deflation is still out there.  Until the eurozone changes policy - IF it change spolicy - they will be a drag on the worldwide credit market, which will likely pressure gold and especially silver.  A gold-positive outcome would be any nation that decides to leave the eurozone (and then promptly print money), an ECB policy change to monetize eurozone debts, or moves to restrict capital flows between any of the major nations.  But until any of those things happen, Europe's deflation will be a drag on the price of gold.

My goal here is to see the future as clearly as possible, rather than searching out stories to prove myself (or my faith) correct.  If nobody can get gold because its all sold out, thats some great information.  Meantime I'll be looking for clues as to levels of support in the futures markets.  Right now, the rebound is proceeding; there was a successful test of the lows (1334) in Asia thursday which has resulted in a really impressive move up to 1415 right now.  My recipe for a successful rebound would be a slow and steady climb, a series of higher highs, followed by a breakout at 1565, with the shorts being squeezed the whole way up.  Those are the footprints of Soros (and people like him) accumulating slowly.  If you're a chart watcher, look for those long legged daily candlesticks where the market keeps probing the lows, and they keep being bought.

A big smash like this has the potential to clear the decks for a big move higher.  But stories won't do it - only the market's reaction to the smash will tell us how things will unfold.  So far, it's positive, but rather than faith-boosting, we need to see events as evenhandedly as possible so we can ascertain where things will move next.

To that end, I would encourage everyone to avoid seeing this as a football game where "your team" scores with every gold-positive news article.  Really look for the truth!  We cannot "urge the gold market higher", its way too big.  All we can do is try to figure out what its really doing, and take action based on the information we collect.  I'm long gold too; I have a vested interest in knowing the truth.


[quote=davefairtex]I see the buying of PM down here by retail as an encouraging sign.  If "the world" sees this as good stuff at a discount rather than buying the story "the gold bull market is dead", it could be a pretty lethal bounceback.
I would encourage everyone to not only find the "good gold news" but rather the "bad" gold news too.  Try and smoke out the truth from the barrage of "goldbug cheerleaders" articles as well as the MSM's well-spun story suggesting gold is finished as an investment vehicle.  I don't trust either of them.  We should also tune out the LBMA failure rumors, manipulation stories, and the like.  If those other central banks and real people around the world treat this like a sale, the futures markets will respond soon enough.  They have no choice.
I really like the stories from individuals here who have gone to coin stores and found them empty of gold.  That's the kind of stuff I like to hear.  Not articles from kitco or KWN, which is all gold all the time.
I completely agree with all of this.  The thing that most has me ready to run out and buy gold and silver with both hands is the degree of physical tightness in the retail market in the US as evidenced by lack of supply and blown out premiums (as high as I have ever seen them), as well as the rest of the world's buying spree.
One of the things I was waiting for was a breakdown between the paper price and the actual, physical price.   Even here we might note that the premium on well-respected funds like PHYS and  PSLV are negative(!) while the premium on actual physical is quite positive.
This indicates to me that people are preferring the real stuff over all abstractions - a bird in the  hand is worth more to people than one in the bush - even ones as well run and tied to a trustworthy custodian like the Sprott funds.
Now, all of this could be over in a few days or weeks as people calm down and prices normalize, but it shows that with even a slight amount of increased buying pressure the physical network in the US can be completely tapped out.  The only thing that could remedy that would be much higher prices which might convince a few folks to begin parting with their stashed metals.
All said, a disconnect between the paper and physical markets is one of the signs I have been waiting for for a long time.  This might be it, but it's not severe enough for me to say "this is it!!" However, it is most decidedly a very interesting development.

I visited the local Bank of Nova Scotia branch (Scotiamocatta) on my lunch hour to do a small bullion purchase and see how things were going. The staff at the counter reported that they have been unbelievably busy with bullion sales of late, lots of people coming in wanting gold bars and other products, some of which they do not have and cannot fill the orders. This is quite startling as it is not the normal way things are in that branch. They cannot give lead time on delivery (none is ever kept on hand and has to be ordered in). The last time I bought it took about 5 weeks to actually receive it. Premiums paid were 1.20 per oz + a $6.00 flat processessing fee. I also have to pay exchange as the prices are all quoted in USD. At least I can take solace that the CAD is higher than it historically has been…It is really interesting to see how people on the street are reacting…that is going to be my real barometer - not what gets reported in the news.

That was on silver bullion, so the premium would amount to about 5% by my calculation.

Today - local coin shop owner stated that he's never see it like this before (seem to remember comments like this at the local PDW shop over the past several months).  He's not selling "anything that doesn't come in the door first", and little is coming in.  Best estimate on delivery of existing orders is ~5 weeks, and he is not taking any new orders at this time.  He mentioned that some dealers are going ahead and buying from other dealers (bypassing the mints?) to cover their existing orders (as a way to limit exposure to possible volatility).   

My coin dealer happily sold me silver eagles on Monday for spot + $3/coin premium.  I had to wait two days.  Today he's had to raise his SAE premium to $6.50/coin and told one customer, "This is insane.  You might consider waiting until the premiums go back down."