Gold and Silver Demand Unprecedented

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MoneyNews.Newsmax.com had the interesting headline “Mints Rush to Meet Gold Coin Demand.” It starts off with a blockbuster statement, namely that the world is in “crisis mode”. In fact, a report by The Independent in the United Kingdom notes, “With the world economy now in crisis mode, gold coin production is rising” all over the place, with the result that, “As investor appetite for gold increases worldwide, nations which mint coins of the precious metal have hiked production to satisfy the growing demand.”

In fact, demand for gold is so high that “Sales in the United States of the one-ounce gold American Eagle coin, minted from gold bullion, soared more than 400 percent in 2008 over previous sales to 710,000 ounces” which seems like a lot until you remember that the gold mines of the world produce about 80 million ounces of new gold per year, and so 710,000 ounces ain’t really squat, in the Big Scheme Of Things (BSOT).

Even so, a spokesperson for the U.S. Mint said, “Demand for gold and silver has been unprecedented”, although you would hardly know it from my field research, where I randomly accost people on the street and ask them, “Hey! You! Are you buying and/or holding large quantities of gold as a defense against the ruinous inflation in prices that your own stupid government is causing by deficit-spending almost $2 trillion this year alone, when the GDP of the Whole Freaking Country (WFC) is only about $14 trillion, or are you some kind of moron that can’t even answer a simple question?”

The results of my research are pretty dismal, which explains why there are over 300 million people in the USA and, although demand for gold is up 400 percent in the last year to 710,000 ounces, this is still only accumulating 0.00237 ounces each! A fifth of one percent of an ounce of gold per capita! Hahaha!

An interesting sidelight is that when people write and ask me, “Dear Mogambo, Probably because I am gullible and I take a lot of medications, I believe you when you say that I should buy gold in some kind of tangible form that I can hold in my hand, instead of being suckered into that whole ‘paper gold’ scam, but tell me; which specific gold should I buy? (signed) Listening in New York”.

My impulse is to reply “Dear Listening in New York, Why in the hell are you asking me? How the hell should I know? By actually doing some more work and finding out? Ha! Don’t make me laugh! I work plenty hard around here already, regardless of what a bunch of backstabbing coworkers say behind my back and write on the wall in the bathroom! And anyway, 24 karat gold is 24 karat gold, you moron! (signed) Mogambo.”

Now, instead, I can quote this newsmax.com article, and save a lot of time by just telling them that the best-selling gold coin in the world is the Austrian Philharmonic (which is named after the Vienna Philharmonic Orchestra) 24K coin.

And in fact, sales of “the world’s best-selling gold coin, climbed 544 percent this year to the end of February” which means that its sales growth is higher than the American Eagle!

And speaking of gold, Bill Bonner here at The Daily Reckoning quotes Stewart Dougherty, of “Theft of a Nation”, as saying, “The United States of America, or, more precisely, the American people, are said to own 261 million ounces of gold, supposedly stored in the same Fort Knox vault that Goldfinger found so appealing. At $1,000 per ounce, the people’s gold has a value of $261 billion dollars. TARP 1 alone has cost 270% of the entire value of that singular, tangible American asset. The total $13 trillion bailout cost thus far is 4,980% of the value of America’s gold asset. Fort Knox has been robbed.

Bill Bonner himself does some quick figuring and finds that, put another way, “They’re squandering $13 trillion…or nearly 49 times the U.S. gold supply”! Astonishing!

Until next time,

The Mogambo Guru
for The Daily Reckoning Australia

P.S. This is where I stand up, look around, and make crude and rude gastronomic sounds to express my complete disbelief that people are not buying gold, silver and oil against this kind of monstrous expansion of the money supply; a behavior which I have promised to no longer do at the dinner table, either at home or someplace else, ever again.

Whee! This investing stuff is easy!

Mogambo Guru
Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
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Comments

  1. Soon they will make gold illegal to force us to use their paper money and that will spark unrest.

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  2. Err – I’m not sure what that article was all about. Maybe keep the satire to the Onion? I thought this was a serious website.

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  3. Why would anyone buy gold if it is in long term decline?

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  4. Richo: What kind of decline are you talking about?
    – price decline? I don’t think so…
    – production decline? This means higher prices! (less supply)

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  5. I prefer to get the facts about gold supply and demand from the World Gold Council. Demand overall is not soaring. (and globally it isn’t up 400%)

    Also gold coins are great for Mints, not so good for investors as you are paying a premium for having your gold in a coin. Oh and Mints normally struggle to keep up with a surge in coin demand because they are reluctant to invest in additional expensive minting equipment because they know that more often than not, the gold coin fad passes. (just like when you have to line up for a meat pie at the footy when a big crowd is in)

    I am not saying gold is a good or bad investment, I am just trying to get some balance into the discussion. Maybe we are in fact in a Gold bubble?

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  6. everyone does not seem to mention that all the gold ever produced throughout millennia is still in the system..if the price of gold increases to an attractive level, won’t this gold reappear on the market, increase supply and hence dampen the price?
    Its a fundamental feature of gold…it is a perpetual product..the vast existing stock does not errode with time, and the more the miners produce, the more will be held in someone’s vault.

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  7. Balance into gold discussions..An interesting concept. Gold will likely go up with general inflation in due course(when money is seen to be suffering a loss of value across the spectrum .Could be a few years away, could be 5 years could be next week.It will likely have many speculative and false dawns as traders take their profits and dealers make their commissions(and by definition take a slice of other gold fanciers investments funds many of whom frequent this site….you need to create a market with winners and losers if money is to be made.Losses dont happen just between those that have gold as being smarter than those out there that dont…No. those holding gold are equally exposed by others that do and who can exit at your expense anytime.. Will $1000 of gold less commissions paid be worth more than $1000 of money plus 3% interest (plus any higher rate that rises with inflation) in 5 years time.? maybe. The money might then be worth around $1500 and only buy current day (i.e April 09) valued goods of $750 if high inflation had occurred and money lost half its value. The gold might have risen a high 60% over 5 years and be worth $1600. After paying commission to sell it may buy current day (April 09) valued goods of around $800.Sure it might go much higher over the 5 years and everyone get out at the top?..don’t think so.It is just another investment.It is always an option and has a value for its practical usage and whatever value the herd wants to give it.You can’t eat it but the herd may bubble it up in the market. Production of gold may decline but dinosaur tooths are probably in decline too and I wont be investing in them.Like gold they may be worth some speculation though if there is enough interest in them.

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  8. Australia sold off a fair chunk of its gold reserves a few years back – The basic attitude at the time seemed to be we have plenty more in the ground – If necessary the miners will just go and dig a bit more of it up. (For what comment may or may not be worth?)

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  9. Ned S what I find interesting is people who say most of the gold in the world has already been mined. Now how exactly with so much of the earth still not surveyed, do they come up with that wonderful conclusion? Of course it is possible…but isn’t it also possible there could be some massive find in Africa for example?

    By the way, I just read an article here in Japan where they are mining industrial waste for gold. Apparently there is quite a large amount of gold that could be recovered from industrial waste if the technology improves and prices stay high. It is a funny old world :)

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  10. I traded a few emails with an Economics PhD a while back who was singing the praises of gold – I said don’t be silly – For gold to back money that means gold will have to be worth maybe USD 6,000 per ounce based on my pitiful little number crunching attempts – He said, you’ve got the picture alright! I said governments don’t want a bullion standard because it prevents them fiddling their economies. (With the thought in mind that governments usually tend to win I guess.)
    Still wish I’d bought a bit more back when it was AUD 800 per ounce though – I was even less well informed back then and working on pure gut feel – So let the nice lady who worked for the bullion dealer I phoned talk me out of it when she said Don’t be silly, gold’s in a bit of a bubble at the moment – Wait a while – It’ll come down.
    My summary position at this time: Gold will may very well go up if/when we see a lot of inflation. But I personally suspect other more fundamentally useful things will go up more. (You always have to bear in mind what currency you are working in as well – There is precious little joy in seeing the USD gold price increase by 10% if you are an Aussie who has just seen the AUD increase against the USD by 12%)

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  11. Greg Atkinson – As I guess you know by now, I take a bit of a general interest in Russia – And recall having looked at a map of the joint at one time and thinking Gee Siberia looks pretty big to me – I just mightn’t be too suprised if the Russkies started poking around there under the ice they might find an awful lot of goodies – Including some gold. And the fact that the weather is decidedly brisk most of the year definitely does not prevent motivated miners accessing it – Canadian ore carrying trucks just direct their exhaust emmissions through a hollow core tray to prevent the ore freezing to the tray – As one example.

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  12. Gold in more or less but mostly minor concentrations exists in geological features all around us including hard rock,alluvial materials and beach sands. There is always more gold to be dug, as long as the current price supports the activity at a profit. Oh and also the current technology which can reduce the cost of recovery makes a difference. One hundred years ago old timers barely bothered with quartz gold unless grades were around an ounce to the tonne minimum and the gold was in visible and hence easily recoverable form. Today many of the best mines process bulk mineable ore with grades around one gram to the tonne. So there is always more gold just in lesser concentrations, heck if you had your house bricks assayed youd probably even get a result from that, albeit a small one.
    Lachlan

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  13. Ned S…yep, I reckon you might be right about Siberia. There would appear to be plenty of places on the planet where there might be gold in them there hills!

    Lachlan – good point about technology. Economists generally have trouble getting their heads around technology and it seems lacking from most of their analysis. Every time I read about some shortage in terms of food, oil, gold etc I keep thinking yes we think that way now, but in 50 years the place will be vastly different. Who knows what technology will deliver?

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  14. Lachlan and Greg Atkinson – Gold exists in sea water. (As do a lot of prized or at least useful commodities.) We just don’t have the technology to extract it at anywhere even vaguely beginning to approach being cost effective (compared to the current more traditional approaches) – But that is certainly not to say we won’t or can’t – Crack the cheap energy thing and the world changes a LOT.
    There was a time when we couldn’t even fly … And not really all that long ago … And way less so (comparatively) when one considers the ever more rapid advancements in breakthrough technologies.
    There is even the possibilty of fulfilling the old time alchemists’ dream someday perhaps? – We don’t like a lump of lead – We want it to be a lump of gold – No problems, the periodic table just says we have to strip out the right number of protons, electrons and neutrons (without blowing a hole in the earth that punches through the other side preferably) and Pb = Au. But it needs a lot of energy I gather?
    Still, such problems have been solved before and presumably will be again. The timeframe of when such things might happen (given that we still haven’t cracked the “common cold” problem) remains open to question I guess?

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  15. The “common cold” problem – Biology is a tough science – Given that the problem tends to “morph” as one is working on it. But extracting gold from sea water; Or cracking coal into oil (cleanly please – The Germans knew how to do it “dirty” in WW1 minimum) – Those just aren’t such difficult problems. Wonder when “Economics” will progress past the point of being a bunch of disjointed and contradictory theories to a science – Albeit a tough one maybe.

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  16. Yeah thats it Ned. The sea. Why when you think about it its the cheapest ore you could mine. Just stick your pipe into it and suck it up. Maybe we can pull a few bullion bars out of our polluted rivers and clean the water while we’re at it.
    Bacteria can produce coarse gold. They digest gold in whatever form Im not sure ( maybe atoms,small particles, bound up in molecules eg sulphides). And out the other end (of the process) comes gold in coarse forms such as nuggets of very high purity. I new a bloke once who reckoned he’d make make his fortune by setting them to work on a few thousand tonnes of mullock he had behind his house. I think he’ll be waiting a few thousand….million years for that to work out and of course even if we could entice these little critters to take part in a commercial proposition youve still got the expense of moving heavy ore. But the sea may come up trumps yet in that department. Still Im not worried about this happening before I get a chance to sell some gold at an unreasonable price.
    Re:technology Greg. Maybe what technology we get and when we get is hard to judge in advance. Ten or so years ago someone told me we’d be driving flying cars by 2003 or thereabouts…but the skys are still clear!…thank God

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  17. Re my last post – I hate myself! Economics has not advanced to the point where it has theories yet – Only hypotheses (I fully suspect?) Please forgive a stupid old man for momentarily forgetting the most basic scientific training of his youth perhaps?

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  18. You guys are sooo smart. What if they find more gold tomorrow. What if they make gold from seawater tomorrow. You can’t eat gold. What if the price falls tomorrow. There is a commission on gold.

    Well there is a surplus of stocks TODAY. They can make stocks TODAY in any quantity. You can’t eat stocks either. The price of stocks has fallen YESTERDAY, TODAY and it will fall some more TOMORROW. Possibly to zero. There is a commission AND tax on stocks.

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  19. Lachlan – Gold from the sea – Yes I think you are safe for a while yet too. There was an Indian chap I read about a while back who reckoned he’d cracked that problem. But given the lack of any detail it sounded like it just could be something equivalent to those Nigerian emails we were all getting a while back that basically said “Have I got a scam for you!”
    Bacteria are interesting re gold and seawater – If my recollection is correct, some people think that is how placer type nuggets got formed?
    The other thought is that even if the problem starts to show signs of being “crackable” the likes of Barrick and Newmont will be real busy buying the patents.
    Along those lines I personally knew a Chemistry PhD back in the late 1970s early 1980s maybe, who passed a comment that we’d come pretty close to cracking the cancer problem (the solution revolved around plain simple old Vitamin B – B14 or B17 ?) But the big Drug companies bought up the patents. (No money to be made in simple solutions I guess?)
    I’d be real tempted to dismiss that as pure conspiracy theory under different circumstances. But like I say I knew the man. He was obviously well educated, intelligent, certainly never struck me as having any spive type tendencies at all and surely seemed to be quite conservative by nature as well – Definitely no banner waving down with the establishment type. He wasn’t even passing a moral judgement on it from what I could see – Just happened to state something he believed was a fact as a spin off from whatever the staid boring chemistry topic was that was being discussed at the time – And moved straight on without making any big deal about it. And in the years I knew him, I never heard him make any other comment in relation to anything that could be regarded as controversial in any possible way. So under those circumstances I actually have to continue to entertain the thought that his statement may just have had a wee bit of possible creedence.
    Just one more aspect to the “Technology Will Save Us” debate possibly?

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  20. I REALLY do know what your saying Janez. This world is a warped place! Problem I have is you cant eat money either and further more its eminently in danger of losing its buying power. I need to save money to fund my future so Ive decided to convert my cash to gold amongst other things. It really goes against the grain because of the fact as you say, “you cant eat it”. But anyhow I have to play my environment the way that it is not the way Id like it to be and if Im wrong I”ll know Ive done my best and I wont waste time looking back.
    PS If the world was the way Id like it to be then primary producers would get paid a fair price for their goods. People would return to the land with optimism for their futures and they would have pride in their way of life. Furthermore the nation would have something approaching a sustainable way of existing. We may actually have food security. The current system makes this idea a fantasy.

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