GLOBAL DEBT INCREASE 2018 vs. GOLD INVESTMENT: Must See Charts

Global debt increased at the fastest rate at the beginning of 2018.  In just one quarter, total global debt jumped by more than $8 trillion.  That is quite surprising as total world debt rose by $22 trillion for the full year in 2017.  Thus, the increase in global debt last year averaged $5.5 trillion each quarter.

However, global debt according to the Institute of International Finance dropped by $1.5 trillion in the second quarter of 2018.  While mature markets saw their debt decline in Q2 2018, emerging market debt increased by $1 trillion lead by China.  In looking at the data from the Institute of International Finance (IIF), they stated that global debt jumped by over $8 trillion in the first quarter of 2018 to $247 trillion, but then declined $1.5 trillion to $247 trillion in Q2 2018.

So, the global debt must have jumped by $9.5 trillion to $248.5 trillion during the first quarter of 2018 and then dropped $1.5 trillion in Q2.  Thus, the IIF must be revising their figures each quarter.  Either way, the net increase in global debt in the first half of 2018 was $8 trillion.

If we look at the following chart below, we can see how the increase in global debt compares to the value of the total global gold investment as well as the value of world gold supply:

From my research, total world gold investment, Central bank and private investment total approximately $3 trillion.  This is based on the data from the next chart that estimates global gold investment of 2.25 billion oz valued at a $3 trillion:

Interestingly, when I did the chart above earlier this year, the market price of gold was trading at $1,330.  Today, it is $100 less.  So, if I want to be totally accurate, total Central bank and private gold holdings are presently valued at $2.8 trillion.  Regardless, global debt increased $8 trillion in the first half of 2018, more than 2.5 times than the value of all world investment gold holdings.

Furthermore, total global gold production I forecast will reach 3,375 metric tons this year (108.5 million oz), going by the World Gold Council’s Q3 2018 Gold Demand Trends, worth a total value of $137 billion (shown in the first chart above).  Which means, the increase of global debt in the first half of 2018 was 58 times greater than the value of world gold production this year.

The ability of Central banks to print money and add debt has impacted the value of most stocks, bonds, and real estate.  Thus, we have experienced massive “ASSET PRICE INFLATION” rather than “CONSUMER PRICE INFLATION.”  Simply put, Central bank monetary policy has mostly benefited those who invest in stocks, bonds, and real estate.

Unfortunately for most investors, the present economic cycle is 10 years long, getting ready for a massive correction lower.

Physical Gold Investment Demand Jumps Q3 2018 While Retail Investors Shun Gold ETFs

Quite expectedly, retail investors shunned Gold ETF’s and moved back into stocks as the broader markets rallied in the third quarter of 2018.  After the Dow Jones Index fell to 24,000 in June, down from a high of 26,500 in January, it added another 2,750 points during the quarter reaching a new record high of 26,750 in September.

According to the World Gold Council Q3 2018 Demand Trends, Gold ETF’s liquidated 103 metric tons during the third quarter as the broader markets rallied:

However, the World Gold Council stated that physical gold investment jumped 27% in Q3 2018 to 211 metric tons (mt) versus 165 mt in the same quarter last year.  Furthermore, physical gold investment demand in the third quarter of 2018 was 17% higher than Q2 of 180 mt.

So, while the retail investor is still BAMBOOZLED by Central bank asset price inflation, physical gold investors continue to purchase a significant amount of the metal as it is one of the only safe havens available in the market to protect wealth.  And let me tell you, the time will come when retail investors wished they had purchased some “SAFE HAVEN GOLD” at much lower prices after the markets crashed.

As I mentioned at the beginning of the article, total gold annual production in 2018 is currently valued at $137 billion (based on $1,220 gold price).  Now, compare this to the value of global silver production this year of $14 billion:

While the global silver production ratio to gold will be 8 to 1 this year, the value of the silver mine supply will be one-tenth that of gold.  According to the Silver Institute’s Silver Interim Report, global silver production will increase to 865 million oz, up from 852 million oz in 2017.  If we go by the average silver price of $15.80 so far for 2018, total silver production this year will be valued at $14 billion.

Thus, the total value of all gold and silver mined in 2018 is a measly $151 billion compared to the increase in global debt 1H 2018 of $8 trillion.  What most investors fail to realize is that the massive $247 trillion of debt is propping up the assets in the market.  So, when the debt implodes, so will the assets.  On the other hand, gold and silver will still hold their value and likely increase significantly during the next market crash.

In my next article that will be published on Friday, I will show my estimated breakeven cost for the Top Five Gold Miners in the world as well as how their overall production continues to decline.

Happy Thanksgiving.

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30 Comments on "GLOBAL DEBT INCREASE 2018 vs. GOLD INVESTMENT: Must See Charts"

  1. A further sign of how far down the rabbit hole we have gone. What I find interesting is the ratios and what they represent. The 2018 mining results with gold to silver ration being mined is 1/8 for volume but 1/9.7 for value. This seems to represent the available ore deposit ratio. The current market price of gold to silver ratio is about 85/1, which seems to represent the ratio cost of extraction and refining. The ratio that evades discussion, and may ultimately be the most important for investors, is the ratio of available above ground supplies. Your graph shows 2,250.5 moz of gold and 2,539 moz of silver which is an available gold silver ratio of a mere 1/1.27 or nearly equal, with the vast quantities of gold owned by central banks and not available to investors.

    What do you think the consequences will be when the credit market collapses?

    Thanks

  2. I still don’t understand why silver is so cheap.

    • It is market sentiment which can be detached from fundamentals for some time. Silver price can temporarily remain below the cost of production as well. It can even fall 30% more before a new parabolic move begins.

    • lastmanstanding | November 23, 2018 at 8:17 am | Reply

      They don’t want anyone to believe in its value. Tech can NOT be increased without it.

      They have been crushing strong hands since it was $50 in 2010. As the years have gone by since then, more pm holders have bailed. They want everyone out.

      Don’t be everyone.

  3. Meanwhile

    The latest (October) gold to silver ratio is 85.26
    Silver is dirt cheap.
    For that matter, considering whats coming, so is gold!

    • lastmanstanding | November 23, 2018 at 8:26 am | Reply

      Hard to believe isn’t it.

      Infinite record (silver and gold) of being a/the top tier assets ever…except the last century or less.

      This will not continue forever.

  4. Can’t wait for the crash of global fiat assets! :))

  5. Michael Kohlhaas | November 22, 2018 at 12:46 am | Reply

    Cannot wait to see the whole crap going down!!!

  6. Agree with SteveW, the ratios are stark. And especially the near parity of above ground stocks. This could prove explosive for industrial use due to price in-elasticity.

    The ratios of debt to metal, the ratios of metal to metal – all telling, and key. Another great essay, thanks Steve.

  7. The Hell With Mexico. | November 22, 2018 at 10:23 am | Reply

    Is a 100% certainty that the Mexican senate(MORENA) mining motion will be approved and as a direct consequence,Grupo Mexico and Peñoles are crashing (for three consecutive days).The essence of the
    new legislation is that indigeneous communities must grant permision for any new mining project and it will be a prerequisite, before obtaining a mining license.

    Recent adverse developments will most definitely collapse the silver production…

    http://www.jornada.com.mx/ultimas/2018/11/22/acciones-de-mineras-mexicanas-se-hunden-tras-propuesta-en-senado-5279.html

    http://www.jornada.com.mx/2018/11/22/economia/021n2eco

    Most recent silver production down over 8%
    http://www.beta.inegi.org.mx/contenidos/saladeprensa/notasinformativas/2018/ind_miner/ind_miner2018_10.pdf

    • @The Hell with Mexico. Wow..allowing local communities to vote on upcoming mining projects is big news. AMLO is a big time populist. Inviting local communities to participate is like asking the local mafia and the Sierra Club to agree on A mining project. I’m thinking of Tahoe mining which was the 2nd largest pure silver mine that was shutdown by a local community. Mexican mining costs are going up while PM prices have remained stagnate and below mining production. While not as big a deal for gold, silver on the other hand is a consumable Metal. 25% of global silver mine supply comes from Mexico. I wonder what happens to the silver price as mining production starts to ireally decline because of local politics, increasing crime, and higher energy prices. Boom..straight to the moon Alice.

  8. “From my research, total world gold investment, Central bank and private investment total approximately $3 trillion. This is based on the data from the next chart that estimates global gold investment of 2.25 billion oz valued at a $3 trillion.”
    Steve, assuming the reported quantities are correct – to which extent are these transactions physical? There could be a lot of unhoarding going on (from the part of “legacy gold owners” – or not).

    • “Total Investment & Central Bank Holdings” – 2,539,000,000 Troy oz Ag? Shocking figure. Taking that number with a grain of salt. If Central Banks were hoarding that much silver it would bring manufacturers around the globe to their knees and there would be little to no inventory available for bullion retailers.

  9. Having read (and thought) further, I gather, that the mentioned 2,25 bn oz of gold are TOTAL HOLDINGS of both cbs and private owners – not new investment in H1 2018.Is this correct? How do you get there (link?)?

    Other than that – is there a way of separating “physical” from “gold claims” in these holdings? Thanks

  10. Here’s an English article on the proposed Mexican mining law. Looks pretty serious if passed. Mexico produces 25% of global silver mine supply. I wonder how long before local communities start to extort the miners. Worse yet, what about the criminal organizations that control many of Mexico’s local governments. Could get ugly pretty quick.
    “The Secretariat of the Economy (SE) and the Mexican Geological Service would both have to consult with indigenous communities under the proposed amendments to the federal Mining Law.”

    https://mexiconewsdaily.com/news/mining-proposal-costs-two-firms-32-billion-pesos/

    • Remember what happened the last time an indigenous community was consulted? The Escobal silver mine in Guatemala was one of the most productive silver mines. Due to local indigenous environmental concerns the Guatemalan supreme courts shut it down. Tahoe resource recently sold the Escobal mine to Pan American Silver. The Escobal mine is still closed.

    • The Hell With Mexico. | November 24, 2018 at 5:59 am | Reply

      Petedivine.

      There was no planned maintenance by pemex.

      but nevertheless Mexican crude production crashed (data was released last night)
      http://www.pemex.com/ri/Publicaciones/Indicadores%20Petroleros/eprohidro_esp.pdf

      subsidize gasoline ended yesterday.

      http://www.jornada.com.mx/2018/11/24/economia/022n1eco

      • The Hell With Mexico,

        Can you provide a similar link to Mexico’s total petroleum consumption?

        steve

          • The Hell With Mexico,

            Thanks for those links. Very helpful. However, there seems to be a big difference between the data for Mexico’s total petroleum consumption compared to the IEA – International Energy Agency and the current BP Statistical Report.

            For example, the link you sent on Mexico’s total production was right in line with the IEA’s figures. If you go to the link below, and input MEXICO, the IEA will show data going back until SEPT 2017. You have to pay a nice chunk of change to get more of the updated info.

            Here is the link to the IEA’s chart data: https://www.iea.org/oilmarketreport/omrpublic/charts/

            According to the IEA, Mexico did produce 2.0 million barrels per day of total petroleum products in SEPT 2017, very close to the 1,993 kpbd shown in the table you sent which was directly from Mexico. However, the IEA shows Mexico’s total petroleum consumption in SEPT 2017 at 1,963 kpbd and BP shows the average for 2017 at 1,910 kpbd compared to the figures from Mexican Volume of internal sales of petroleum products and natural gas document which shows the average petroleum consumption in 2017 much lower at 1,495 kpbd.

            The Hell With Mexico… does that document represent ALL PETROLEUM CONSUMPTION or just internal sales? I wonder if there is a document that shows consumption figures closer to what these other organizations are reporting.

            The reason I ask has to do with Mexico becoming a NET IMPORTER of oil as production continues to decline. I need a more accurate figure of total Mexican petroleum consumption to know how close the country is to be becoming a NET IMPORTER.

            steve

          • The Hell With Mexico,

            I looked at the data from the IEA’s Report. Mexico’s total oil production in August was 2.05 mbd (million barrels per day) while total consumption was 1.95 mbd. Thus, Mexico is now only a net exporter of 100,000 barrels per day. Just 10 years ago, Mexico was a net exporter of 1.085 mbd.

            If the current trend continues, Mexico will be a NET IMPORTER of oil within the next 1-3 years.

            steve

  11. Here are this weeks charts http://learnpowertrader.weebly.com/
    Silver is weak. It hit the 50 with an evening star type pattern forming a triangle.
    Gold is stronger than silver being in an upward channel. It is also in a triangle so it may not go anywhere for a while.
    Bitcoin is drastic. It broke the large bearish triangle and if you follow the one two three formulae it comes out at zero. It won’t of course, but how low?
    S and P 500 It is hanging onto its upwards channel by the skin of it’s teeth. Is that a small shoulder? If so if it breaks the neck line all hell will break out. It is over sold so it may waft around in a triangle for a while.

  12. Jeez and I would have thought Dolph would have dropped by to troll Steve with one of his many brilliant/sage comments. Dolph is the SRSRoccoReport’s version of Bill O’Reilly, he’s just looking out for the folks!

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