Gold Supply and Demand Will The Balance Hold?

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Smaulgld
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Gold Supply and Demand Will The Balance Hold?

Yesterday the World Gold Council issued their third quarter 2014 gold supply and demand report that showed a 2% decrease in demand year over year and a 7% drop in supply with the volume of recycled gold continuing to shrink.

While gold supply/demand appears to be in balance,(unlike the silver supply demand dynamic which is in deficit) there are many changes on both sides of the equation that threaten to disrupt the seeming peaceful equilibrium.

https://smaulgld.com/gold-supply-and-demand/

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HappyNow
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There are a couple of very

There are a couple of very interesting silver charts on your page.

Two different charts from two different sources but they tell a consistent story.

Silving mining production has increased to provide the supply of silver over the past few years to meet increased demand.

Note well how the surplus/deficit correlates to price.   That turns my supply/demand price model upside down.

Despite the deficit starting in 1989 price declines and despite 15 continuous years of deficit price doesn't move up significantly until holey moley the deficit is moving toward surplus.   The surplus starting in 2008 causes price to move up rapidly and then price begins dropping again when demand overtakes supply and that deficit reappears. 

You read that right.  Price increases as surplus increases and then declines with decline in surplus until finally as deficit is realized price plummets in free fall.

That data is credited to the CPM group.

This chart below uses data credited to the Silver Institute and while not exactly the same data it tells a similar story.

silver-demand-and-use-1994-2013-Silver-I

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zman
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I think what your charts

I think what your charts might be missing is industrial usage and investment demand.

Industrial demand is about 2/3's of the silver supply, the left over silver is always considered investment demand or implied investment.  Not all of the investment silver is coined and sold, the left over silver is called implied investment demand.

Lets put it this way, the investment world does not fear any shortage of physical silver, that's why the whole global economy can get all the silver it wants today for $15 oz.

Smaulgld
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Decrease supply, increase demand price goes down

That is what the charts show!

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silverwood
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On precious metals price action

This is simply my view from observing precious metals price action and what IMO is causing it. I have been using the Yen carry trade for my analogy. Large spec funds borrow Yen at very low interest rates. They then sell these Yen to invest in other currencies better yielding products, ie. stocks, bonds, commodities, etc. This all works as long as the Yen is falling or remaining stable in price with the other currency. If the Yen appreciates those carry trades will be unwound. The BOJ has been giving the green light to the Yen carry players who are short Yen. This helps the BOJ efforts to drive down the price of Yen.
A similar type of game is being played in gold. Central banks lease out their gold at very low interest rates to bullion banks. They sell the gold and buy higher yielding instruments just like the Yen carry trade. Gold must be in a bear market for this to work. So IMO the manipulation by the banks has been to maintain the bear market in gold by defending upper resistance levels. The hedge fund see this clearly so they are playing gold from the short side knowing the banks will defend their carry in gold. So the key here is watching the action on upper resistance levels in both gold and silver. Also this is why it important to see what the miners(supply side) are doing. Please go to my thread on supply and demand in the stackers forum. What I see is these price levels are  indicating a future supply crunch as miners go into survival mode. How long this will take to play out is unknown but the longer the price stay in this range the more damage it will do to future supply.

Grey Mare
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very good description - the gold carry trade

Silever wood,

I think you are right.  And it ties in with the Mineweb article on GOFO in backwardation article by the Aussie statistician, Fraser Murrell.  The bullion banks make money on the carry trade by issuing gold certificates - far more than they have physical gold to back.  As long as gold is in contango, they then drive the (comex) price of gold down and can re-buy their certificates (to reduce the risk of holders demanding delivery or worse, refusing to sell the certificates back), also at a profit.  But when gold goes into -backwardation they can't buy the certificates back profitably. Prolonged backwardation raises the possibility that holders will not sell the certificates back, putting the banks in a tough position. What to do do? Issue more certificates to hopefully drive the price down far enough to discourage holders and bring price back in contango? What if they simply increase demand in the physical markets to the point of removing all available physical supplies? And discourage production by incapacitating the producers to boot?  The questions is, have we (finally) reached that stage or do they have more supply to bring to the table through coercion or otherwise.  Who knows? Many have thought they should have run out physical long before this and been wrong.

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zman
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@grey

"what is they simply increase demand in the physical markets to the point of removing all available supplies"

If demand increases the price will also increase, this is how markets work!

You do realize that jewelry, investment, and GLD demand are all down substantially the last few years?

silverwood
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World Silver Supply and Demand

https://www.silverinstitute.org/site/supply-demand/

HappyNow
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silverwood

If you pay attention to the price while looking at that table it is still clear that a deficit in silver is not accompanied by price increase.  Strange, sad, but true.

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