Eric Sprott: GOLD ALERT

The latest Markets at a Glance newsletter touches on a few of the topics that Eric and I discussed in depth this morning in his interview with SilverDoctors which will be released this weekend discussing the European debt crisis, Thursday’s gold and silver raid, and tightness in the physical precious metals markets.

GOLD ALERT

By Eric Sprott and Shree Kargutkar

There have been key developments in the physical gold market over the last few weeks which we feel are worth highlighting:

1) The Chinese gold imports from Hong Kong in April, 2012 surged almost 1300% on a YoY basis. Total gross imports for the month of April were 103.6 tonnes and the net imports were 66.3 tonnes1. It is not the data for April alone which has caught our eye. There has been a stunning increase of gold imports through Hong Kong for export into China over the past 2 years. Between May 2010 and April 2011, China imported a net 66 tonnes of physical gold through Hong Kong. Between May 2011 and April 2012, that number jumped to 489 tonnes. This represents an increase of 640%.

HONG KONG GOLD EXPORTS TO CHINA (KG)gold-alert-june8.gif
Source: Census and Statistics Department of Hong Kong

2) Central banks from around the world bought over 70 tonnes of gold in April, 2012. Data from the IMF showed developing countries such as the Philippines, Turkey, Mexico and Sri Lanka were significant buyers of gold as prices dipped2.

3) Iran purchased $1.2B worth of gold in April, 2012 through Turkey. As the developed nations continue devaluing their currency at the expense of developing nations, countries such as Iran, China and Mexico are forced to look at alternative stores of value3.

4) After twenty years of lackluster returns and stagnant bond yields, Japanese pension funds have finally discovered the value of investing in gold. The $500M Okayama Metal and Machinery pension fund placed 1.5% of its assets into gold bullion-backed ETFs in April in order to “escape sovereign risk”4.

5) Bill Gross writes5, “Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of previously sacrosanct debt therefore represent a potential breaking point in our now 40-year-old global monetary system. […] As they (investors) question the value of much of the $200 trillion which comprises our current system, they move marginally elsewhere – to real assets such as land, gold and tangible things, or to cash and a figurative mattress where at least their money is readily accessible”. Is the bond king recommending gold? YES, YES YES!

6) The Gold Mining ETF, GDX, has seen strong inflows in the past 3 months. The number of units outstanding have increased from 162.5M6 to roughly 187M7 between March 1, 2012 and May 31, 2012. This represents an increase in assets of almost $1.2B in a span of 3 months. It is worth pointing out that for a majority of this three months period, GDX, and by extension the gold mining companies were experiencing significant declines in their market values.

We believe there has been a material change in the gold investing landscape. The HUI, which is the Gold Bugs Index, is now up over 20% from its lows since May 16th, 2012. The slide in gold equities seems to be subsiding as a foundation for a strong move upwards is set. New buyers, represented by the Chinese, central banks, Japanese pension funds and the Iranians, bought almost 140 tonnes of gold in April alone. To put this into perspective, the annual gold production is approximately 2600 tonnes8. China and Russia produce around 500 tonnes of gold annually, which never makes it to the open market. This leaves about 2100 tonnes of gold production annually for the rest of the world.

When buyers representing 140 tonnes of new demand enter a market which only has 175 tonnes of monthly supply, we are left wondering about two things:

1) In a balanced market, where is the source of supply to the new buyers going to come from?

2) How can a new buyer of size get into the gold market, which is already balanced, without significantly impacting the price of gold?

The answer is fairly obvious. When demand outstrips supply, prices move higher. These significant macro changes in the supplydemand dynamic of the gold market should propel the price of gold to new highs.

 Read more from Sprott.com

 Be sure to check back this weekend for Eric’s explosive interview with The Doc regarding the European contagion and Thursday’s gold and silver raid.

1 HK Gov statistics website: http://www.censtatd.gov.hk/
2 IMF website: http://www.imf.org/external/data.htm
3 http://www.resourceinvestor.com/2012/06/05/irans-gold-imports-from-turkey-surgedin-april?ref=hp 
4 Financial Times: http://www.ft.com
5 http://www.pimco.com/EN/Insights/Pages/Wall-Street-Food-Chain.aspx
6 http://www.forbes.com/sites/etfchannel/2012/02/28/notable-etf-inflow-detected-gdx-abx-gg-nem-3/
7 http://www.forbes.com/sites/etfchannel/2012/05/29/noteworthy-etf-inflows-gdx-abx-gg-nem-3/
8  GFMS – www.gold.org

Comments

  1. They’re stacking for sure.

  2. THIS WEEK’S COT REPORT 6-8-2012

    It Looks Like The Commercials Are Starting To Increase Their Shorts Again. While This Development Is Not, In My Mind, A Good Thing, I Know We Must Accept It As “Normal Everyday Manipulation” 

    The Commercials Increased Their by 1301 Contracts Shorts To 61452 

    They Decreased Their Longs By 890 Contacts To 44927

    This Raises The Commercial Shorts As A Percentage Of Total Inventory To 57.58% From 50.14%

    The Percentage Of Their Shorts As A Percentage Of Registered Also Rises To 231.21% From 200.56%

    This Means, As I Have Been Guessing, The Bottom In The Silver Price Is Likely To Be “Already In Place”. Thus, The Scenario That I’ve Been Discussing For Last Weeks Should Resolve Itself With Rising Silver Prices From Now Into July 4th (roughly) INCLUDING A Retest of this $28 low. 

    This Also Confirms That The COT Report From Last Week Signaled The Low We’ve Been Guessing About.

    Total Inventory This Week Rose To 143,486,176 Oz

    Registered Unchanged at 35,740,329 Oz.

  3. Spott is the ultimate stacker.

  4. Interesting—I Only Had A Chance To Glance At This Week’s Silver Comex Inventory And I thought The Total Inventory Had Risen—It’s UNCHANGED!

    IN FACT NO CHANGES WHATSOEVER THIS WEEK IN INVENTORIES—LOL!

  5. Wow. Can’t wait for the full interview. Funny how so much physical gold and silver has been bought and yet the price remains about the same. When it all turns loose PM’s should jet very high. Hope you’re right about the bottom in a way Jake. Though, I’d like to stack more at these prices, it’s about time for a release upward.

  6. Well I guess if China is buying it’s oil from Russia without the dollar then what a better way to off load all those surplus green backs, before they are worth nothing. The geopolitical chess game is getting interesting.

  7. Excerpt From My Discussion on 6-1-2012  here silverdoctors-cot-report

    Thus, as of Tuesday, these banksters have decided now that they’ve seen
    an inflection point in the silver price, that there’s just no steam left
    in the downside, and in general, silver prices should climb from here.

    If
    this interpretation is correct, (remember, this is all a guessing
    game), we’ve seen a low for the year at that $26 handle and we should
    start to see that fake rally I
    have been thinking about that should occur before July
    4th.

    I originally thought it could rise to $30-32 and that it
    should drop again to see $28 before July 4th before we see a rally above
    $32. I’ll stick to that guess.

    But, more importantly, the COT Report shows an deceleration point.
    We should see a rally in the silver price first so that they can do
    what they always do. What I’ve been saying, for a few weeks now, is that
    I’ve been looking for them to start increasing their net weekly short
    totals into a price rise. This will CONFIRM that we’re well into a
    rising trend. Remember, I had guessed that the $26
    handle silver price we saw two weeks ago was most likely the low for
    the year.

  8. You may be right Jake. The only thing that would change that would be a black swan event. There are so many things happening world wide, a swan event wouldn’t surprise me. Some kind of black swan event is likely to occur before the end of the year IMO. Syria, China slowdown, attack of Iran, Spain and Italy in deep trouble, etc. We’ll see.

  9. Desperation is in the air. The first 3-5 months of a recession usually goes unnoticed and may be called a “Soft Patch”. Could it be we are there? I think so. Good points above. Keep preparing and stay at the ready!

  10. It Could Something Completely Different

  11. Don’t You Have Anything Without Spam?

  12. LMAO Jake!
    Spam. LOL.

    Add a little cheese tomato and onion and have a 2 OZ. Spam Burger.

  13. Cheese You Say?

  14. LMAO I read the topic and then I start reading the posts and then I get near the end and I lose my train of thought and can’t stop laughing.LMAO

    Anyway good time to stack. LMAO there I go again. LMAO

  15. I lost My Train Of Thought Too—Is This Boomerang Baby?

  16. Too funny Jake. You watch way to much T.V. Although, I remember this episode. Damn it man. LOL. Cheese I do say.

  17. Not Only Do I Watch Too Much TV But I Watch WAY TOO MUCH TV:

  18. Watch Closely As a Young Mr. ObamaBean Thinks He’s “TOO ELITE” To Pay His Parking Fees:

  19. All this talk of TV watching reminds me of a comment made by my then 4-year old grand daughter.  She was visiting us one day, so my wife asked her if she wanted to watch TV.  She replied in utter seriousness, “No Grandma, watching TV rots your brain.”  We both just about fell over!  From the mouths of babes and all that.  She’s 10 years old now and still does not watch much TV.  She would far rather DO things than watch other people doing things.

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