Global Gold Investment Demand To Overwhelm Supply During Next Market Crash

When the next market crash occurs, global gold investment demand will likely overwhelm supply.  When this occurs, we could finally see the gold price surpass its previous high of $1,900.  Now, this isn’t mere speculation, as we already have seen this taking place in the past.  When the broader markets crashed to the lows in Q1 2009 and the 10% correction in Q1 in 2016, these periods were to two highest quarters of Gold ETF investment demand.

I don’t really care on whether the physical gold is actually in the Gold ETF’s, rather I like to look at it as an important indicator that shows us how much investor fear there is in the market.  Moreover, with the amount of leverage and debt now in the system, when the market crashes this time around, it will push gold investment demand up to a record we have never seen before.

The chart below shows the amount of physical global gold investment demand over the past 14 years.  As the gold price increased, so did amount of gold bar and coin demand:

As we can see, during the U.S. Banking and Housing Market crash in 2008, gold bar and coin demand doubled to 868 metric tons (mt), up from 434 mt in 2007.  That was quite a lot of gold bar and coin demand as it totaled nearly 28 million oz (1 metric ton = 32,150 oz).  Furthermore, as the gold price jumped to $1,571 in 2011, gold bar and coin demand shot up to nearly 1,500 mt (48 million oz).

Now, the reason for the huge spike in physical gold investment in 2013 was due to the huge price smash as the gold price fell from nearly $1,700 in the beginning of the year to a low of $1,380 by the middle of April.  Investors thought this was a huge sale on gold so demand for bars and coins reached a new record of 1,716 mt.

However, net gold investment demand in 2013 was only 804 mt because Gold ETF’s experienced a massive outflow of 912 mt.  Basically, the gutting of the Gold ETF’s by the gold price takedown allowed investors to purchase that record amount of gold bar and coin.  Moreover, Gold ETF flows continue to be negative in 2014 and 2015.  Over the three years, (2013-2015) a total of inventory of the world’s Gold ETF’s declined by 1,221 mt.  Thus, net global gold investment remained below 1,000 mt from 2013 to 2015.

But, this changed in 2016 when the U.S. stock market experienced a 2,000 point drop during the first quarter.  The Dow Jones Index fell from 17,500 in the beginning of January to a low of 15,500 within a month:

During this first quarter of 2016, Gold ETF inflows spiked to 349 mt, up from a net outflow of 66 mt in Q4 2015.  You see, gold continued to flow out of Gold ETF’s right up until the point the market fell 11% in the first quarter of 2016.  As I mentioned before, the only other quarter that experienced a higher amount of Gold ETF inflows was the first quarter of 2009 when the Dow Jones was falling precipitously to a low of 6,600 points.  Gold ETF inflows surged to 465 mt in Q1 2009 versus 95 mt Q4 2008.

We must understand that investors panicked into gold during a lousy 11% in Q1 2016 in similar fashion to the market meltdown in the first quarter of 2009.  Thus, investors are likely to rush into gold to a much larger degree during the next market crash.

Taking these factors into consideration, I produced the following chart:

Now, assuming current market conditions, investors will purchase roughly 1,050 mt of gold bar and coin and 250 mt of Gold ETF’s for a total of 1,300 mt.  However, I believe the next big market crash could push global physical gold bar and coin demand to 3,000 mt.  This will have a significant impact on the price as available supply vanishes.  We could easily see a $2,000 gold price as the stock market crashes by 25-50%.

Again, we have evidence that the gold price surged by $200 when the Dow Jones fell by only 11% in the first quarter of 2016:

Today, it’s a totally different ballgame.  Not only is the gold price almost trading at $1,300, the Dow Jones Index is 6,000 points higher than what it was at the beginning of 2016.  If the Dow Jones experienced another severe 10-15% correction, we could easily see gold move up by $200.  So, what happens when the markets tank by 25-50%?  And what about gold demand?

As I stated above, we could see total gold investment demand surpass 3,000 mt when the stock market crashes.  This is bad news because there won’t be the available supply… maybe at much higher prices.  Furthermore, the highest annual total net gold investment was 1,730 mt in 2011.  This included 1,498 mt of bar and coin as well as 232 mt in Gold ETF demand.  But, we must remember, there wasn’t a stock market crisis in 2011.  Thus, Gold ETF demand was in the normal range.

Mainstream investors are the wild card.  By that, I mean when the markets turn south in a big way, they are going to go totally wild.  While physical gold demand in the U.S. is down 50% compared to last year I don’t look at it as being negative, instead it indicates a bottom or low in precious metals sentiment.  The situation in the precious metals market can turn around on a dime.

Lastly, when total global gold investment demand surges to 3,000 mt in one year, it will put a great deal of pressure on available supplies.  Total global gold annual supply is approximately 4,500 mt.  However, we also have to include jewelry (2,000 mt), technology (200 mt), and Central Bank demand (300 mt).  So, if we experienced 3,000 mt in total gold investment and added all other demand it would equal 5,500 mt.  This would be 1,000 mt more than supply.  The highest annual deficit the market experienced was 198 mt in 2013.  The world has never suffered a 1,000 mt deficit.

For this reason, Central Banks make sure investors continue to put their funds into the Greatest Paper Ponzi Scheme in history rather than in a very rare precious metal called gold.  There is one thing for sure, all Ponzi Schemes collapse, but a 2,000+ year history of sound gold money won’t be forgotten.

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44 Comments on "Global Gold Investment Demand To Overwhelm Supply During Next Market Crash"

  1. Gold:

    fun·gi·ble
    Self Clearing
    Not somebody else’s debt
    Does not rely on someone else to measure its units

  2. John Pierpont Morgan said it best:

    “Gold is money, everything else is credit”.

    Also take into consideration that out of approximately $250 trillion in the world of financial instruments; CASH (actual notes & coins) compose a small $2.2 trillion portion of the total. Of which the majority is held outside the country. Where is your wealth?

  3. Will central banks release their holdings in times of shortage? Did they buy gold to support their currencies if needed, or as a swing supplier for market demand? Central banks manipulate, nothing more, nothing less.

  4. Steve, these “investment demands” (bars and coins) must be a multiple below actual demand. China imports close to 2k mt per yera, india 1k mt, Russia & Turkey > 500 mt – these countries alone account for way over 3500 mt of demand per year, not counting Germany, and the rest of the worlds stacking countries, ETFs, companies, individuals. That would make the phyzical demand likely closer to 5000 mt when global mines plus scrap are in the neighborhood of 4000 mt. *someone* must be liquidating bullion en masse to balance this and when *someone* runs out of leasing bullion into these “markets”, THEN the music will stop.

  5. I agree with the logic 100%. But I believe the problem is they can float these markets for decades to come…

  6. GLD and SLV are sore points in the intelligence of investors scale – Anyone putting funds into an ETF which has a custodian whose purpose is to destroy sentiment and value of the product needs to rethink their strategy. JPM (silver) and GS (gold) use GLD and SLV as their warchest – look at the hammering and compare ti withdrawals of physical from the funds. – the hammer needs physical to hit hard.

  7. 2000$ ist an understatement. Every analysis is detailed but too unemotional.
    The markets are logic as long nothing horrible happens. Then emotions set in and take over.
    You have to take in account that much more people understand today that our financial system has an unreverseable expiration date.

    They all secretly wait for the “big one” . . they have been warned about for decades.
    So every sign of it will spark a gold and silver buyfrenzy. I think the next collapse will be the last collapse EVER since war will break out soon to eliminate every knowledge about the ponzi-sceme to start over.

  8. Gold and silver are useless.

    Here’s my prediction: whatever the future price of the metals, none of you will ever liquidate. Because even then, you will say “fiat currency has no value” “everything will hyperinflate” “government deficits are out of control” “the system is corrupt” All of your usual drivel.

    The world has moved on, and you keep clinging to your metal, which they will only pry from your cold, dead hands.

    • So i’ll keep my currencies to heat my house when the time comes? Bad eroei dude.

    • Kenneth Tillotson | November 11, 2017 at 3:47 am |

      Here is my prediction:Fiat money will all but disappear as crytocurrency will force it out of existence !! Gold and silver won’t be useless unlike dollars or any other currency

  9. Steve, any news out there why the Central Fund of Canada PM ETF is being acquired by Sprott ? Thank you in advance for any comment.

  10. Hi Steve,

    I find very interesting that, accordingly to your first graph, global demand of physical gold is already a bit higher than it was in 2010, at the apex of financial/political turmoils (who has forgotten the famous “whatever it takes”?).
    We’re said the worst has passed away while numbers tell the opposite.

    Regards,
    Riccardo

  11. Humm, just as I figured, the pipeline is tight. Nice when a plan comes through.
    For several yrs been telling folks to sell stocks and get in PM’s.
    When crash comes might invite em over for a beans and rice banquet. But only after they help weed the garden.

  12. Bix Weir thinks you’re crazy and that there’s 1,000,000 tons of gold in the Grand canyon

    Ever tried looking into that and chocolate mountain or is there too much to lose?

    • even if Bix is correct, it will take ten years minimally, from vein to market… and that’s without said deposit in federally protected habitat and national park.

    • DisappearingCulture | November 11, 2017 at 8:34 am |

      “Bix Weir thinks you’re crazy….”
      He’s the crazy one. A real piece on work.

    • joey,

      I’ve had an ongoing debate with Bix on some of his supposed CONSPIRACY THEORIES. By the way, Bix also believes we are using up Foreign oil reserves so when the Dollar finally crashes and we go back on a gold standard, then we will start tapping into these supposed vast HIDDEN OIL RESERVES in the United States.

      Unfortunately, this sort of thinking is PURE BOLLOCKS. You see, there are these professionals called INDEPENDENT GEOLOGISTS. Yes, there are hundreds of them out there. These INDEPENDENT GEOLOGISTS can look at all the types of remaining reserves in the U.S. They are not stupid. And, you can’t get all of them paid off to keep this a BIG SECRET.

      Thus, the quality and quantity of remaining gold and oil reserves are very low. Because Bix doesn’t look a the DATA, he continues to mislead his followers on what I label as, LOUSY CONSPIRACIES.

      Lastly, while conspiracies do take place, LOUSY CONSPIRACIES can be easily disproven by data. Unfortunately, Bix does not look at the information I publish in articles or send him via email. Either he can’t accept this information as it would totally destroy his ROAD TO ROOTA THEORY, or he doesn’t have an open enough mind to consider it.

      steve

      • Michael Kohlhaas | November 11, 2017 at 9:19 am |

        Bix is a dishonest little motherfucker. I tried to read his books but the quality is very poor. The style is that of a child. My little daughter is a Shakespeare in comparison.

  13. Kenneth Tillotson | November 11, 2017 at 3:30 am |

    Hi Steve, Am I correct in assuming the price of precious metals will continue to enjoy a higher
    floor price with the falling EROI ?

    • Kenneth Tillotson,

      Yes, you are correct. As the Falling EROI of oil continues to go lower, the value of gold and silver will have a FLOOR. Why? Because the EROI can also be gauged by human or animal labor. If we run low on oil as an energy source to produce gold, to do it with human labor would take a great deal more work as the high-quality gold reserves are gone. I don’t see how human labor can extract gold out of the ground at 1 gram per ton. Only huge earth moving equipment can do that efficiently.

      So, we are going to see an explosion in the value of Gold and Silver with respect to most other assets that will fall in value as the OIL EROI continues lower.

      steve

  14. After almost a decade of reading about peak oil, EROI etc., I’ve lost money every year since I
    began reading your columns. Before you start making fun of my writings, I now see that your
    are writing about stock market or fiat money collapse.Have you ever considered what 330 million Americans do the few days after your prognostication? My answer is since you grow your own veggies etc. I’ll ask, “Guess who’s coming to dinner?” How about several hundred hungry people? Silver and gold are now not a safe have. They don’t react to a Korean war or the National surging debt. Why? Because America is innovative and Crypto currencies took the
    money intended for PMs.In a few more years it will be something else cutting the need for oil in half, prolonging oil usage. Whether you like it or not, silver’s only hope is demand exceeding supply in real terms not by Cloud’s, Morgan’s or such other “hypsters” predictions. So for once,answer my question, if the dollar fails or the market crashes 50% as you forecast, “What does the everyday US Citizen do?”

    • Not to worry Joe. Big tax cut 2018. Tax reform 2019. Stock market to 35000K. Trump reelected. No crash for next 10 years or more??

      • John,

        That all sounds great except for one BIG PROBLEM, analysis of Tax Cuts or Tax Reform excludes our huge ENERGY PREDICAMENT. Who cares about tax cuts if the oil we are using to run everything finally GETS into BIG TROUBLE… which it is. I forecast that U.S. domestic oil production will likely decline by 50% by 2025.

        The disintegration of the Oil Industry will gut the entire financial system… with or without tax cuts. Focusing on Tax cuts or tax reform is like an Emergency Room Doctor concentrating on an accident trauma victim’s superficial wounds when the person is dying from internal bleeding.

        steve

    • joe lindell,

      Here is an idea… why don’t you try very hard to write something different than your typical response we have seen over and over and over again. Just an idea. Also, you said that you have been reading about peak oil and the EROI on my site for almost a decade and have lost money ever since.

      First…. my site did not start until 2013.

      Second… you seem to have forgotten about the two years silver was trading over $30.

      Third…. you told me that you would give your silver to your family as an inheritance as they could benefit from its price rise in the future. So, why do you continue to belly-ache that the price rise hasn’t happened yet?

      Lastly… I don’t know what is going to happen to Americans when the market crashes by 50%. All I can tell you is what I am doing and what others might consider, by looking at the data and doing their research.

      So, if you want to continue writing the SAME OLD BORING responses how you haven’t made any money for the past decade in precious metals, so be it. However, you never bring up the $20-$30 trillion in Central Bank money printing and FX Currency Swaps since 2008 and the impact they had on all Assets.

      You seem to live in a MAINSTREAM MEDIA BUBBLE.

      steve

      • I disagree. People need to start calling out ALL gold and silver shills on the internet who have misled people into assets going nowhere.

        Data is meaningless if it doesn’t help you right now, and we know with absolute certainty that the central banks will prop up all markets, and suppress the precious metals.

        • dolph,

          Excellent idea. Why don’t you start a site of your own and relay this OPINION of yours to the public? I don’t have a problem with someone disagreeing with me. However, people today for some darn reason have the ATTENTION SPAN of a GNAT. They have been brainwashed to believe in Quarterly Results and how companies borrow money to buy back stock and pay dividends to keep the Ponzi going.

          So, yes… in the short term, your opinion that Gold and Silver have gone nowhere for five years is correct. However, you as well as Joe Lindell like to exclude the Falling EROI as well as the Massive amount of Debt, Derivatives and Money printing. Why don’t you try and FACTOR those into the equation?

          But again… you are free to start your own ILoveWallStreet.com site and explain why you believe BANKERS are doing GOD’s work.

          Be my guest.

          steve

        • DisappearingCulture | November 11, 2017 at 10:01 am |

          “People need to start calling out ALL gold and silver shills on the internet who have misled people into assets going nowhere.”

          People need to start calling out those who make such moronic statements. Let’s look at some real-life logic. Is someone who sells gold or silver responsible for what the markets [manipulations actually] do? No they are not.

          “Data is meaningless if it doesn’t help you right now, and we know with absolute certainty that the central banks will prop up all markets, and suppress the precious metals.”

          Data is meaningless if it doesn’t help you right now? Data is data, data isn’t meaningless becasue someone can’t or doesn’t use it in a certain time framework.
          Yes, central banks are propping up markets and suppressing precious metals [and G & S sellers are not responsible for that]. How long do you think that can continue? No one knows, but I would bet way less than 10 years.

        • Here’s an asset going nowhere for you Dolph, the S&P going into a black hole.

          Btw Steve, your articles on KSA dumping their currency reserves were spot on. What the hell are they doing? War time? They MUST force oil prices higher.

      • DisappearingCulture | November 11, 2017 at 8:45 am |

        Steve,

        Joe has asked a question:
        “So for once,answer my question, if the dollar fails or the market crashes 50% as you forecast, “What does the everyday US Citizen do?”

        Some of them will riot Joe, and will come and steal everything they can from you. Are you ready Joe, becasue social disorder IS COMING.
        And I’m NOT being flippant with this reply.

  15. Perhaps they’ll wake up?

    • Realise that we never went to the moon and america has been one lie after another. The question which should be answered is: what is, or was, the biggest lie?
      free markets?
      Israel america greatest friend?
      911
      the dollar ponzi scheme enforcing worldwide debt slavery?
      We won the war?
      The constitution means something?
      Liberty?
      etc etc.

  16. Adding the following as a reference for the forum Steve…. No doubt you have already read it.

    “Somewhere between the second half of 2018 and the end of 2019 oil will dramatically increase in price and that will shake the foundations of the global mountain of debt and its related underfunded liabilities.”

    http://www.zerohedge.com/print/607054

  17. I have my own “road to roota ” theory.
    We are on a road permitting the banksters to root all a the common man’s assets out’a his hands.

    We are living in a conspiracy by the “bad” guys since the Fed Res started, I don’t wish to be saved by a conspiracy by the “good” guys to then only be manipulated by the new bunch. Remember Power Corrupts and absolute power is the s–ts.
    My wish is that market forces become so strong no one can control.

  18. Fasten your seatbelts stackers and get ready for another big PM’s dip when hedge fund algos kick in the short selling. BB shorts will profit and then add to their physical holdings. JP ain’t no fool.

  19. Thank you Steve. You are a stand up guy and you are also correct about my
    thousands of ounces of silver earmarked for the grandchildren. I truly do write the same old thing just like you. All I ever wanted you to recognize is that you are 10 + years to soon. Why did we buy silver in the $20 range when we should have waited for the teens? You can answer that you are not a wizard but your articles sure as heck did encourage quite a few to stack too early. Anyone can say PMs will be up 20 years down the road but real hard evidence did exist telling us “don’t buy silver just yet.” So I saved a bundle, invested it in stocks and I now
    can buy twice a much with my gains. Any analyst must put a time frame on
    his research or would you rather that your readers listed to a quack like Tom Cloud?

  20. Woohoo! Always been lurking but now I’m a patron!! Thanks for the great articles. Love the trolls because they bring out fantastic rebuttals from your end. Peace!

  21. Steve, thank you for the information. Ignore the complainers because they are worth ignoring. We obviously stole Iraq’s gold, Libya’s gold and Ukraine’s gold (with the paid for overthrow and puppet placement in Ukraine) to fill our empty coffers for price manipulation and bide time. We obviously did not give back Germany’s gold. We can see the forest for the trees. So we wait.

  22. This is a good post Steve but I think something is missing. In the event of a market downturn or something more serious like a crash crypto currencies are offering an attractive outlet to both retail and institutional investors. I am firmly in the camp that this will reduce (but not eliminate) demand for PMs. Instead of a meteoric rise in prices we’ll see a softer float up. The more the world gets used to crypto the more acceptable it will be for using the currency as a way to protect wealth. It’s fluid, can be sold or bought at the click of a mouse, and its growing in acceptance. I don’t own one electron of a crypto, but I can see where this is going.

    As long as the world remains stable (relatively speaking) crypto will continue to fill a need that was once reserved for PMs.

    Anyway I agree with the direction of your analysis but it should probably be adjusted to temper price action. For example, what happens if 25% of the historical demand for gold and silver in a crash is diverted to crypto currencies? It’s probably a realistic starting point.

    • From one of Steve’s recent articles “Why precious Metals are the better LONG-TERM store of Value over Bitcoin”

      “Currently, the total value of all gold investment is $2.9 trillion versus $143 billion for the crypto market and $47 billion for silver. Thus, the value of all gold investment is 20 times higher than the cryptocurrency market and 61 times greater than the entire global silver investment.”

      Gold is the primary safe haven and ultimate store of value. I would also add that insurance companies, pensions, banks, global investors, and other financial institutions won’t be buying cryptos because they are speculative. They will be buying digital gold for wealth preservation, and should the gold exchange fail they will be buying real assets including gold and silver. There’s no telling how high gold and silver will go when the Dollar loses its reserve status. I am not saying that cryptos will do poorly in that scenario. I am saying that cryptos are not a safe haven that replaces gold. Bottom line…Cryptos are a speculative assets. Look how they trade up and down $1000 dollars in a couple hours. Bitcoin may not be around in 10-20 years. Something else will come along and replace it. Perhaps a better crypto coin, or maybe the energy deficit kills off the technology.

      • There are some crypto startups that are working diligently on filling a need when the bank cabal implodes in on itself. Cryptos will become dominate in peer-to-peer transactions.

        This is pissing off the bank’s and governments. These entities will do their best to cripple or stop the crypto phenomenon, but it’s going to be like wack-a-mole. Eventually the governments and banks will have work with these crypto companies that will provide services that the people will demand and need that the broken legacy monetary system will increasingly not be able to support. The people will also demand a national and international cleanup of the corrupt banking system. Don’t expect governments or banks to accept a gold/silver backed currency. But they will not be able to control a trustless crypto based system of crypto coins or tokens that is decentralized and used worldwide by the people to conduct business in spite of governments and banks.

        As this scenario plays out, governments and banks will finally give up on suppressing precious metals prices because they will understand that cryptos are defeating the plans of the corrupt money masters in spite of the banking cabal metals price suppression game. Then the precious metals will seek their true market value. In time cryptos will be credited with breaking the back of the corrupt money system and freeing long suppressed precious metals prices.

        By the way, I own lots of cryptos and precious metals because I know that prices of both are going to the moon (prices in fiat).

        Hey, I may be wrong, but I’m just giving you some food for thought. Remember, once upon a time Bill Gates said that he Internet was just a fad—wow, was he wrong on that one!

        Think out of the box folks! These are the type of people who survive and thrive because they recognize a need and then set about satisfying those needs in novel ways. If not for this type of thinking, we would still live in caves! Change comes when change is needed in spite of naysayers. Cryptos are here and they are not going away—kind of like automobiles and planes a century ago when horses and wagons ruled—think about it!

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