The Gold Chart That Has Central Banks Extremely Worried

This gold chart should have Central Banks extremely worried.  Why?  Because the change in physical gold and Central Bank demand since the first crash of the U.S. and global markets in 2008 is literally off the charts.

I advise precious metals investors not to focus on the short-term gold price movement, rather they should concentrate on the long-term trend changes.  This is where the ultimate payoff will be by investing in gold.   Now, I say “INVESTING”, in gold because that is what we are doing.

Many analysts such as Jim Rickards don’t believe that gold is an investment.  Mr. Rickards looks at gold as money or insurance on the collapse of the U.S. Dollar and fiat monetary system.  However, I look at gold as an investment due to the collapse of U.S. and World energy production.

While I have been a broken record on this, many investors still don’t understand what I am trying to get across here.  Gold and silver are more than money today because of the 40+ year funneling of investors funds away from REAL ASSETS and into PAPER CLAIMS on future economic activity.  Thus, 99% of investors have sent their money into the largest Ponzi Scheme in history.

Jim Rickards fails to understand this principle because he doesn’t’ factor in energy into the equation.  I find most precious metals analysts do the same thing as they forecast the future gold price based on how much fiat currency (or money supply) is outstanding.

Folks…. it won’t matter how much money is floating around in the future as energy production plummets.  Who cares if there are trillions of M2 or M3 outstanding, when we won’t have the energy to continue running a system that only can function by a growing energy supply.  To base the future value of gold on outstanding currency is FOLLY.

Which is precisely why I label gold and silver as INVESTMENTS.  Their values will surge as most paper and physical asset values collapse.  The revaluation of gold and silver will occur well beyond the collapse of fiat money… they will also rise in value due to the disintegration of most physical and paper assets.  This is well beyond the scope of money or insurance.

The Gold Chart That Has Central Banks Extremely Worried

A2A-TFmetals-SRSrocco-May-19-2016Before I get into the details of this gold chart, I would like to let my readers and followers know about my recent interview on TFmetals Report.  I sat down with Mr Ferguson (Craig) and discussed a lot of the Gold Market in a live webinar with many of his subscribers.  He has now made the interview public:

You can either click on the image and go to the TFmetals Report website and listen to the interview, or you can click on the link below:

TFmetals Report A2A With Stephen St. Angelo Of The SRSrocco Report

Okay, here is the gold chart that Central Banks should be worried about:

World-Physical-Gold-&-Central-Bank-Demand

This chart represents the change of physical Gold Bar & Coin demand including Central Bank net purchases.  Before the first collapse of the U.S. and Global markets in 2008, Central Banks dumped approximately 3,956 metric tons (mt) of gold on the market.  I have figures for 2002-2015 from the World Gold Council, but I estimated a total of 800 mt for 2000 and 2001.  This is based on data from the chart in the article, Germany Stops Selling Gold, Eurozone Sales Fall To Zero.

If we subtract the Central Bank dumping of 3,956 mt of gold from total Gold Bar & Coin demand of 2,776 mt, we get a net negative 1,180 mt during the 2000-2007 period.  Thus, Central Bank sales added 1,180 mt more gold supply than was consumed by investor physical gold purchases.

NOTE:  These figures do not include Gold ETF or similar product demand.  I decided to exclude this data as it is impossible to know if the gold held by these Electronic Traded Funds or similar products is not oversubscribed to one or more owners.  We know that when someone purchases either physical Bar & Coin or Central Bank gold.. there is more of a guarantee that this gold is likely unencumbered.

However, this situation changed drastically since 2008.  Even though Central Banks still sold 235 mt of gold in 2008 and 34 mt in 2009, this changed to net purchases in 2009.  If we add up all Central Bank gold sales and purchases from 2008 to 2015, it turned out to be 2,657 mt. 

While this was a big change from Central Bank net sales of 3,956 mt (2000-2007), the real winner was the increase of Gold Bar & Coin demand.  Gold Bar & Coin demand surged to 9,461 mt from 2008-2015 versus 2,657 mt during 2000-2007.  Thus, physical gold investment and Central Bank demand totaled a whopping 12,118 mt from 2008-2015.  This equals a massive 390 million oz (Moz) for total physical gold and Central Bank demand since 2008 compared to a net supply of 38 Moz in the first period.

Investors need to really take a good look at the chart.  What a change in demand from 38 Moz of net supply from 2000-2007 versus net demand of 390 Moz during the 2008-2015 period.  To get more understanding of the changing gold trends, I discuss this in my interview on TFmetals Report which I highly recommend listening to at the link above.

Lastly, now that Mainstream investors piled into Gold ETF’s during the first quarter of 2016, this could really upset the market going forward.  Currently, Gold Bar & Coin demand and Central Bank purchases are averaging about 1,600 mt annually for the past several years.  This could easily jump to 2,000 mt once the U.S. and global stock markets start to crash as investors move into the SAFETY TRADE (of gold).

If western Gold ETF demand really starts to surge, this could cause serious trouble for Central Banks as availability of gold supply tightens.  Global Gold ETF demand hit a high of 645 mt in 2009 as the U.S. and world stock markets crashed to their lows.  However, we already saw a huge 364 mt inflow of Gold ETF’s during the first quarter of 2016… and the DOW ONLY FELL 2,000 points.  What happens when the market really tanks??

If Gold ETF demand jumps to 1,000 mt along with Gold Bar-Coin demand and Central bank purchases totaling 2,000 mt, this would equal 3,000 mt or nearly 75% of total supply. 

At some point, demand for gold will overwhelm supply causing the price to skyrocket.  This isn’t a matter of if, but a matter of when.  So, the more Central Banks screw around with monetary policy and as the broader stock markets continue their collapse, the closer we are to seeing record gold prices.

Lastly, if you haven’t checked out our new PRECIOUS METALS INVESTING page, I highly recommend you do.

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29 Comments on "The Gold Chart That Has Central Banks Extremely Worried"

  1. Thanks for the great work you do.

    • Why are cb’s buying gold? To revive trust in their currencies when things really go south, or are they stacking for some supply when shortages in physical gold occur? What’s your opinion, if i may ask?

      • They have a surplus of fiat currency; after all they create it and/or control it depending on which country’s cb one is talking about. They know people are losing or will lose faith in fiat; may as well buy something real with it. And when the SHTF that gold will end up in whose hands? Not the common people. Perhaps the controllers of that particular central bank? That would be my guess. So ultimately aren’t the elite controlling a country’s cb going to look after themselves first?

        • I’m in Fofoa’s Freegold camp. CB’s are buying, some countries are transporting their gold back home from London and New York. After the reset, which will come, countries still need imports, so they need a currency that can be trusted. The eurozone for example has more than 10.000 tons. But of course elites in some countries will grab it and run.

  2. “NOTE: These figures do not include Gold ETF or similar product demand. I decided to exclude this data as it is impossible to know if the gold held by these Electronic Traded Funds or similar products is not oversubscribed to one or more owners. We know that when someone purchases either physical Bar & Coin or Central Bank gold.. there is more of a guarantee that this gold is likely unencumbered”

    Thanks Steve. ?

  3. Gold is NOT an investment. It’s the PUREST form of money. So is silver. What are you talking about?

    I don’t like Jim Rickards, he’s a CIA or Pentagon insider and possibly has some inner motives of herding people towards paper metal ETFs. But from semantic nitpicking perspective of describing gold as “money”, in this case he’s correct.

    • Assuming gold and silver will increase your buying power in the (near) future, one could call it an investment.

    • Theravadia,

      You are not taking into account ENERGY & the $100+ trillion in supposed global conventional paper assets. The collapse in value of most paper assets is much bigger than the collapse of the U.S Dollar.

      This is the reason GOLD IS AN INVESTMENT. I don’t blame you for not understanding this.. most don’t.

      Steve

      • Correct, but NONE of those $100 trillion+ paper assets or quadrillion+ derivatives or whatever are MONEY. They’re future promises on energy. (Yes, I’m taking energy into account, and fully understand it.)

        The fact that almost all of the world mis-priced cost of labor and energy, and these will (and should) get re-priced against milligrams of gold or silver doesn’t change the fact that gold and silver are MONEY and always have been.

        • I don’t think he’s saying that gold and silver are NOT money, but that at this point in history they ARE BOTH money AND investments.

          If something is going to get re-priced vs. something else like you say, that’s what an investment is, right?

          • Theravaida | May 22, 2016 at 7:26 am |

            OK, point taken & not beating the dead horse on this anymore.

            I notice a statement in his post now: “Gold & silver are more than money”, which somehow I didn’t recall registering in my mind the last time. Not sure if Steve edited his post or what, but the point has now been well made.

      • Steve,

        From a strictly semantic perspective and the the lexicon of this site, Gold and silver are money so they cannot technically be an investment. An investment is “The action or process of investing money for profit or material result.”

        The only way you can logically get to “Gold is an Investment” is from a dollar centric point of view with the dollar being money and gold is the investment you are making with your dollar money.

        I think we can all agree that the dollar fails the definition of money on a number of counts.

        I prefer to think of fiat currencies as just another form of paper asset investment. When I convert my dollars to gold or silver I am “Cashing Out” and taking my money out of the great ponzi scheme.

        While this may seem to be nit picking semantic tom foolery, it clearly exemplifies a problem we all face in analysing the coarse of the current economic insanity, how it will evolve and where we will end up. Being locked in a dollar centric perspective and attempting to see the world through dollar colored glasses will lead to erroneous conclusions and inappropriate reactions.

        SteveW

        • Good points; I think Steve sees metals as an energy investment.

        • Are you sure there’s not another way you can get to “gold is an investment” besides a dollar-centric point of view?

          Sure you would be able to get more dollars with your gold. What if there was no dollar? What if you were still able to get more goods and services with your gold then than you can trade for the gold now? That would make gold an investment.

          Metals can be money, and investments.

          • Maxblockm,

            Sure, you could consider British Pounds, Swiss Francs, Japanese Yen and Chinese Yuan all as money, making any purchase of precious metals an “investment. However, when a community, this sites readers, its author, its contributors and its history, agree on a linguistic lexicon, it is detrimental to discourse to blur agreed definitions. Fuzzy thinking leads to fuzzy conclusions. So, either fiat currencies are money or they are not.

            Some metals are money, certainly gold and silver, but what about platinum and copper? All other metals are probably only “investments”.

            Make a choice, make your choice clear to others and carry on.

            SteveW

    • From 2000 to 2011 gold and silver were THE investment.

  4. I would like to clarify on above comment. You state:

    “Thus, 99% of investors have sent their money into the largest Ponzi Scheme in history.”

    I say, that’s incorrect.

    99% of investors HAVE NO MONEY WHATSOEVER! All they have are currencies and future promises.

    Like him or not, Jim Rickards is correct in this sematic: GOLD IS MONEY.

    • Gold and silver are fiat. If you came to Australia 200 years ago and gave an Australian aboriginal a gold coin he/she would probably have thrown it away.
      They are fiat, just a better fiat than paper currency to people who value it.

      • Gold and silver are not fiat. They have industrial use and have intrinsic value today. You can not speak of “200 years ago” when you are talking about ideas and values today. If you give a relevant historic comparison then you can use some past historic event.

      • LOL, you’re talking the same talking points of Ann Barnhardt. (Who has her own other unrelated messed up issues BTW.)

        Even if mankind were able to space travel to distant galaxies and find intelligent lifeforms elsewhere, gold, silver (and platinum, unsure about palladium) are very likely to serve the purpose for trade – essentially serve the purpose of money. Why? Because, all of them are not only very rare on earth, they’re very rare in the entire universe. (Especially, gold and platinum more so.) To understand the reason why, it’s necessary to know the physics about the conditions under which these elements were formed (and are being formed as we speak) in the universe.

        Is it possible there might be some planet or comet in space that may be literally and densely made out of silver or gold or platinum? Sure. But purely from statistical and physics perspective, we definitively know that distribution of such objects in the entire universe is extremely rare.

        • Yes, rare, but not too rare. AND they are practically indistructible (physically and chemically speaking). While the internet age still lasts bitcoin is/was a very great FAD… I still regret not jumping aboard with a small allocation in 2012 when I first heard of it and it was still in the cent range. Dismissed it in favour of PMs… Ah well, I’ll just continue to “stack to my guns”…

        • Why do you think that other form of live in other galaxies would “exchange” (from a commercial point of view) anything ?
          It is indeed COMPLETELY stupid !
          Indeed suppose western (most advanced capitalist countries) productivity would multiply by another 10 fold factor. As humans will still be about the same at this time (lets say in a couple of centuries), most of them would not achieve enough productivity (or after extemely long studies and researche like 2 decades ie 35 or even maybe 40 years old in some case) to be profitable from a capitalist production mode view ie : you must buy before selling with a profit made on the human work.
          So the humanity “should” be divide into a small class of big capitalists, a few remaining workers with very high productivity (some who will join the capitalist class) and a mass of idle people we will not be able to compete with technological advances (robots, intelligent webs,…).
          That’s internal contradiction which will capitalism to fall : it needs human work to be created by progressively, it destroys it.
          So, it is not impossible at all that consequently of very high producivity humanity will cease to exchange and go back to what had been done for millenia : producing in common and spread the production according needs to simplify.
          To sum up, exchange is born at a time of relative shortgage as productivity was low and the apparition of money with gold/silver is a logic consequence well described by economists. To be able to maintain exchange as the general law of society with producivity of 1000 instead of one seems to me irrelevant as I do not think that half billion human in a few centuries will have helicopter or their electric consumption will require one central nuclear of now for each human.
          As a funny side note, most SF films represent the aliens/ET societies without money or even salaried staff, I guess that most elites know that at the end of the road, the current system will not be able to live this way indefinitively !

    • I second that view. ANYTHING denominated in fiat currency is an investment – fiat currency, bonds, stocks where as physical gold and silver (fizz in your possession) are “base monies” (think inverted enter pyramid) with no counterpart risk. Only when fiat money is fully backed by gold or silver it is “as good as gold”, but that would require a “price of gold” in the “sinclairian” 5-digit neighbourhood in today’s dollars.

      Chances are that when THE crisis hits, the nominal price of gold will do very funny things (calls of 250$ might come true – but finding fizz at that price will be something else) before the ultimate collapse (and possibly the issue of new currencies). After that, one wants to still own the PMs, while, sadly, most current “owners” will not (!!!).

  5. Thanks Steve, great interview.

    Regarding energy stored in an ounce of silver and in an ounce of gold..

    Do you have any numbers (kilowatt hours or joules) for energy represented or stored in our favorite metals?

    Does that ( joules/ounce ?) give us a new perspective on a future gold-silver ratio?

    Thanks!

  6. Steve: You mention the collapse in 2008, but you forgot we recovered. You show massive demand in 2008 to 2015 period that had no affect on price of gold & silver which continues downward. ETFs are
    paper not the physical. And you continue using expressions like “at some point demand will overwhelm
    supply,” which has been said these past 40 years! What if, 10 years from now natural gas and coal
    plus solar, wind and dams are key energy sources. Where does that leave oil? For you, one article
    is CBs, then it’s oil, next it’s FIAT, then China is stacking, India is exploding, coin demand is massive
    and guess what? SILVER IS FALLING BELOW $17. There isn’t any demand for the stuff that can’t be
    easily supplied via more mines and the above ground silver stockpiles. We’ve been duped Steve. If silver rises it will be some time in the twenty second century. You can’t talk 300 million Americans into not using the greenback and to have coins in their pockets.

  7. Thanks for your great work Steve. Your charts are wonderful and make your arguments very easy to digest.
    I agree with he notion gold will behave like an investment in the near term as it will appreciate in value.
    I suppose it is a positive development for gold enthusiast that central banks are moving out of USDs and into gold.

  8. silverfreaky | May 22, 2016 at 2:27 am | Reply

    http://infographicjournal.com/visualizing-the-london-gold-market/

    At the moment they trade 600 times more gold than is produced at one day.
    I see no problem for them to increase this to 1000.
    The miner companys must stop this.But they have the deal with the devil(banksters).
    The debts are the problem.Otherwise they could have hold back PM and wait for better times.

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