The Surprising Major Demand Factor That Drives The Gold Price

Investors will be surprised to know the main factor that drives the gold price.  And no, it isn’t the oil price or market.  While the oil price has been a good indicator for the gold price over the past 50+ years, it hasn’t done much over the shorter term.  However, there is a gold market demand factor that seems to move the gold price more than any other indicator.

In my newest video update, GOLD INVESTING: What Really Drives The Market Price, I discuss how different aspects of the gold and broader markets impact the gold price.  When I did the research and put together the charts, I was a bit surprised by the results of the data.

For example, precious metals investors might believe that physical gold investment demand is one of the leading drivers of the gold price.  While that may have been true in the past, or after an economic and financial meltdown like we had in 2007-2008, physical gold bar can coin demand does the exact opposite of the gold price.

In looking at the data over the past four years, physical gold investment increased when the price fell and declined when the price rose:

As we can see in the chart above, the GREEN BARS show that when the gold price (White line) decreases, the demand for gold coin and bar increases.  In Q3-Q4 2015 when the gold price fell to new lows, physical gold investment demand increased to 305 metric tons in Q3 2015 and 300 metric tons in the next quarter.  Also, when the gold price fell from a peak of $1,335 in Q3 2016 to $1,222 in the last quarter of 2016, gold coin and bar demand surged to 379 metric tons.  We can also see the same trend in Q3 2018 when the gold price declined.

To understand what has been the leading driver of the gold price, I suggest you watch the video, and the result is quite surprising.

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46 Comments on "The Surprising Major Demand Factor That Drives The Gold Price"

  1. Michael Kohlhaas | December 16, 2018 at 7:46 pm |

    Let me guess! CoT?

  2. “Investors will be surprised to know the main factor that drives the gold price.”…..Well, I KNOW what it is…it’s MANIPULATION! And I’m not surprised at all! In fact, what does surprise me is how we keep trying to make sense out of charts in a manipulated market. Point in fact…”physical gold investment increased when the price declined…..and rose (increased) when the price fell. This would make no sense in a free market.

    • Crayfish,

      The majority of Gold Coin & Bar demand comes from the Wealthy Investor. So, they are quite savvy to take advantage of lower prices. This isn’t anything new. The typical small investor is the one that BUYS at the TOP and SELLS at the BOTTOM.

      steve

      • DisappearingCulture | December 17, 2018 at 12:34 pm |

        The “Wealthy Investors” are the constantly acquiring countries [China, India, and to a lesser extent Russia, Turkey, and/or their central banks], and a few other central banks have been acquiring in recent years that had years ago reduced their holdings of physical gold. They absolutely buy low. The smaller investors will start to buy more [momentum/yield chasing] when it becomes clear their current portfolios are under-performing [like equities decline] and they hope to get on a PM value-increase train.
        The COMEX et al functions to keep G & S in a range; mot too high or too low; either would be disastrous. They do manipulate the price of G & S more than other “commodities” listed on the exchange; silver more than gold.
        “When the Debt implodes, and it will, so will the value of these assets [“STOCKS, BONDS, & REAL ESTATE”]. That is when GOLD & SILVER will shine.”
        Yes, but the COMEX, LBMA, etc., will work on getting the prices downward, into the range they want…if they can.

      • Well, I still think that we’ll all know that the PM situation has turned when Ladies in the USA are far far FAR more interested in Gold and Silver than buying new Shoes —-and are looking at their phones checking charts vs texting on the elevator or in the café.

        • 4 oz,

          Interesting that you brought up that subject matter. I looked at my Demographics of age for my site, and was quite surprised by these stats for my traffic:

          SRSrocco Report Viewer Age Demographics:

          18-24 = 27%
          25-34 = 34%
          35-44 = 16%
          45-54 = 12%
          55-65+ = 11%

          So, I always thought that the older person followed my work, but it shows that YOUNGER PEOPLE are very interested. I am going to write an article on this very subject.

          steve

  3. It’s over, guys. And you know how long it’s been over? Since 2013. Coming up on 6 years.
    They pounded you guys into oblivion and the game is finished. There are no new drivers of gold demand. We were the last that could have broken the cartel, and they won.

    What does this mean? Not much really. There really wasn’t much hope because you guys were fighting powerful forces, as well as human nature.

    Why is this so hard for you people to admit? Are you going to be 80 years old with cancer and insist you are 20 years old and healthy? Doesn’t this prove your own delusions, even as you insist that everybody out there are sheeple being led by puppet masters?

    Please look at your own delusions first. First remove the plank from your own eye. Then you will be able to see the delusions in others. Gold and silver were always a delusion. They were never a solution.

    • DisappearingCulture | December 17, 2018 at 10:54 am |

      Bitter and troll are two words that immediately come to mind….

    • DisappearingCulture | December 17, 2018 at 11:29 am |

      “There are no new drivers of gold demand.”
      There will be when there are large equities markets sell-offs. For those that don’t know I mean; significant decline in the price of media darling stocks.

    • Better make sure you’re not walking on that plank…

  4. I hope you are not using World Gold Council data for physical gold demand because it is bogus and deliberately understates true physical demand. Demand in China alone is again this year on track to exceed 2000 tons according to the Shanghai Gold Exchange data. Indian demand is expected to hit 1000 tons this year.

    • That is right. These two countries alone sucked up all gold mined during the last 10 years. *Someone* had to supply the surplus demand for all the other stackers of the world, and I have a good idea who *they* could be. Who all has quite “officially” thousands and thousands of tons of fizz “at hand” ???

      • Well that may well be; however, who knows how much fizz *they* have really left to lease into the *markets* (LBMA); should the Western CBs and the BIS be short on metal (rumour is that London is being sucked dry) then the actual paper : fizz leverage could be many many multiples of 200 : 1 – that is obviously pure guessing of mine, but I’d call it not unlikely. However, as long as their ponzi scheme holds somehow together, they will not lower their guard and so we just can’t know for sure what the have (or rather what they don’t have). Eventually the fizz market will force them to a show of hands and me thinks we’re getting closer and closer to this main event. Time will tell how this all will pan out.

    • Michael,

      While we can label all “official sources” as pure manipulation, I disagree. First, the World Gold Council uses GFMS data. GFMS has been analyzing the gold and silver market for 50+ years. I can tell you that GFMS gold production data has been VERY ACCURATE.

      Furthermore, we have no other data to go by. So, we can just throw up our ARMS and say everything is manipulated and just throw dice. But, I don’t believe in that. My analysis shows that the supposed MANIPULATION CARD has been over-played by the precious metals and alt-media community because CONSPIRACIES are more fun and exciting, while the data is boring.

      Lastly, the GFMS gold supply and demand data seem quite accurate when we compare it to what is taking place with the U.S. Gold Eagle Sales and etc. While the GFMS data may be off by certain percentages, I doubt it is misleading the public on purpose.

      steve

      • Steve, yes we do, but obviously the WGC ignores this completely. We know that year after year SGE takes +1600 mt of gold “off the table”, we know by how much Russia stacked fizz gold the last few years, and we know roughly how much gold India imports. These 3 alone accounted for stacking the WHOLE global gold production over the last few years. Let that sink in please, and tell me again that there is no manipulation card being pulled in the ++200 paper ounces to 1 fizz ounce levered paper markets in London (LBMA) and the big apple (CONeX). There is NO GOLD to be had IN SIZE at these prices, but as much paper gold (which is a fraud) as “investors” will ever want to buy. This is the dirty secret that’s out in the open, yet the *markets* so far are ignoring this fact. Guess why? The manipulation IS MOPE and thus keeps the status quo from blowing already and give them another day to financially rape the masses.

        • CHX13,

          While I agree with you that the data is likely not 100% accurate, but the WGC (World Gold Council) does account for Russia’s Central Bank accumulation as well as India’s gold consumption, which includes an estimate for smuggling, which is high. The WGC estimated gold smuggled into India at about 135 metric tons in 2017. I do agree there has been analysis suggesting that the WGC underestimated how much gold China has acquired, but in looking at the Mine Supply (which is very accurate) and gold scrap supply (which is also very accurate), otherwise, I don’t see a big discrepancy in the data.

          CHX13, you must account for the 1,200-1,500 metric tons of recycled gold supply that enters the market each year.

          Now, while it is also true that there are 100-200 paper contracts on gold for every physical ounce backing it, that is how the markets trade today. There are a lot of traders who would rather BET ON PAPER TRADES than on buying and selling physical gold.

          Furthermore, if you think the Gold market has leverage, you should see the oil market. For example, Stockcharts shows these MONTHLY TRADING VOLUMES:

          Oil = 1.6 billion
          Gold = 500 million
          Silver = 150 million
          Copper = 150 million

          Again, I am not defending the WGC, but we must remember that the current spot price is very close to the COST OF PRODUCTION. The REAL MANIPULATION of the precious metals is indirect in that, the Central Banks and Wall Street have motivated the public over the past 50+ years to funnel their funds into STOCKS, BONDS, & REAL ESTATE.

          That is the manipulation.

          steve

          • Steve,
            I understand, but your oil trading volumes must be wrong at 1.6 b per month; it must be much higher than that with ~95 million barrels consumption per day X 30 days X price per barrel of $47 just the physically sold oil must add up to at least 130 B per month (not 1.6); similar calculation per month will reach something in the neibourhood of $12 B gold per month just for all gold sold (mine+scrap).

            And yes, I know I did not include scrap, which is why I said they alone picked up global MINE supply over the last few years (just these 2 countries), not counting Turkey, and the many officials CBs who started again reloading on Gold, or the big banks (not so secretly stacking) and the 0.01% army of private stackers around the world (the future “0.01%”). So my point is, the admitted paper leverage IS the fraud, and yes, obviously I understand this is the status quo, but the status quo IS a fraud too. A gigantic rip-off machine that systemically favours the 0.01%, at least until all blows up (and that it will, as you know best of all).

            For the time being, it all is what it “is”, or rather IT pretends to be what IT is NOT.

            Thank you for a great blog. Best x

          • CHX13,

            That stockcharts volume is just for U.S. Futures. Furthermore, you must remember that the standard U.S. Futures contract is for 1,000 barrels: https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_contract_specifications.html .

            So, trading 1.6 billion volume in a month extends to trading 1.6 trillion barrels of oil.

            Talk about leverage.

            steve

          • That’s a 10:1 “paper oil” to oil ratio – in the PMs we’re talking 200:1…

          • CHX13,

            Sorry… your math is a bit off. You must remember, we are comparing PAPER to PHYSICAL.

            The world produces about 75 million barrels per day of real crude oil. That is 2.2 billion barrels of oil per month. With only U.S. Oil Futures trading volume of 1.6 trillion barrels per month, that turns out to be 727/1 PAPER TO PHYSICAL Leverage.

            THREE TIMES THAT OF GOLD. And that is just U.S. oil futures.

            steve

  5. Time Will Tell

    Enjoyed the video Steve. The co-relation is surprising, but not unexpected.

    As far as dolph saying “It’s over”, I don’t think he knows what’s truly over! lmao

    • It’s over for *them* the day they run out of fizz gold to deliver to the East via Switzerland, the refining hub. One big failure to deliver to the SGE and the fizz market will corner them in a heart-beat. Obviously China et al could do this any day they wanted, but don’t. They help to keep the prices low as long as they can get as much bullion as they can get their hands on. That’s farsighted and smart. China, India and Russia alone bought up the whole fizz global production over the last 10 years. But you’ll certainly never ever hear THAT form the world gold council. But they know, and so should you (and poor poor ever-whining Dolph :-). So GLTY&A, and keep stacking your favourite PM or best a blend of all 4 – Au,Ag core, plus some Pd,Pl just in case – as Pd is currently showing… One just never knows, they all could / will eventually do a moonshot and find a stable orbit outside the stratosphere.

  6. Steve, this is an old hat! The ETFs – and at that mainly GLD when speaking of gold – are the banker’s hoard, it’s THEIR fizz and only THEY can get the fizz for shares. So obviously they want the retailers to pay the high prices on rising prices, then scare them out near the top and get the fizz bullion for cheap near the bottom to satisfy the fizz demand. And they push the price around in the paper casino and TATAA JPMGMSetal go for years trading these fickle markets without so much as a single day that they “lose” fiat (when in the COT they are usually “wrongly” positioned – WFT?). They ARE the price. And you don’t want to talk about manipulation? LOL. As long as GLD/SLV continue to operate *THEY* will push the prices up and down as they seem fit to maximize their own trading gains as well as as much fizz for their own accounts as they can get their hands on before this paper sham called gold “price” gets called out by the much larger world wide phyzz market (the China/Russia/Turkey/India-et-al. PM put). But you’re right, the retail ETF “investor” is the one to get creamed in this dirty game – he actually finances cheap bullion for the bullion banks by investing into paper certificates of supposedly “fizz gold” that s/he can never ever get. It’s as simple as that.

    • CHX13,

      While the notion of “Central Bank Gold Manipulation” is well ingrained in the minds of the precious metals community, the fact remains, the Gold Market Price has been trading around its cost of production for the past 50+ years, and likely forever, for the most part. So, if the Central Banks pushed the gold price to $500 with a cost of production level at $1,200, then I would believe there is outright manipulation.

      BUT… BUT, the gold price continues to trade above the Top Gold Miners cost of production. So, common sense tells us, the Bankers aren’t that STOOPID.

      However, the REAL MANIPULATION of the gold and silver prices comes due to the Central Bank and Wall Street motivating the public to funnel their funds into STOCKS, BONDS, & REAL ESTATE. These assets, or supposed assets, are backed by a tremendous amount of debt. So, that is the REAL MANIPULATION. When the Debt implodes, and it will, so will the value of these assets. That is when GOLD & SILVER will shine.

      Moving the gold price up and down with futures is SMALL FRY.

      steve

      • To Steve’s remark, I also believe that the production cost is the floor for how low the prices of PM’s will go.

        Which means that my money is safe around the 1200 $ mark.

        I’m naturally also hoping for a rally when the equity markets turn sour – whenever that will be?

  7. I think its important to keep in mind that when we see withdrawals from a Gold ETF we’re actually seeing fulfillment of physical demand. After-all, the gold leaving the ETF is going into someone else’s vault. The gold trading market doesn’t represent underlying physical demand. Therefore, It appears the gold price isn’t an indicator of gold demand. Which makes sense since gold trading doesn’t actually involve large quantities of gold. IMO a much better correlation can be found with the Dollar index. Gold and the Dollar index trade inversely. I think the gold / Dollar cross is what moves the price of gold. If you look at that chart you’ll see a high inverse correlation. Having said all that, just look at the state of the U.S. financial system and ask yourself if the Dollar is a good long-term investment. Then invest accordingly.
    https://www.macrotrends.net/1335/dollar-vs-gold-comparison-last-ten-years

    • petedivine,

      You bring up a good point in regards to Gold ETF flows moving into another vault. So, the net result really isn’t that much of an issue. I agree.

      However, I don’t care about the movement of PHYSICAL GOLD, in and out of Paper or Physical products. What I care about is the PULSE OF THE RETAIL INVESTOR. The Retail Investor is the KEY DRIVER of the price. Why? Because they control 99% of the market. So, when the 99% become nervous of the collapse of HIGHLY-LEVERAGED DEBT-BASED ASSETS, such as stocks, bonds, and real estate, they will move into gold to protect wealth.

      The gold price can seriously jump with just a 1% movement of the Retail Sector into the gold market.

      steve

      • Not to be difficult but the charts presented in your video clearly show that physical demand doesn’t move the gold price. When you consider physical gold demand from places like China, India, Indonesia, and Central Bank purchases etc.. that physical demand hasn’t moved the gold price. I don’t pretend to understand the markets, but I do see a correlation between the gold price and the Dollar index. Its highly correlated. Which makes sense, since the Dollar and Gold are competing currencies. I think the volatility of the gold price is probably more heavily influenced by global demand for U.S. dollars. Based on your statement you believe that retail investors can move the gold price. There was a time when I thought that was true. Today…I think computers and algorithms make up the “gold” market. Just my opinion but 99% of investors cannot compete with paper trading from the Fed’s trading desk, Goldman Sachs, JPM, or the U.S. treasury’s trading desk. When physical demand from retail investors goes super nova then I think we will probably see premium prices being multiples of the gold quote. I don’t think we will ever see an official Dollar quote for gold or silver that doesn’t fit the government narrative. However the value of gold and silver manifests we will definitely see fireworks in gold and silver simply because the Dollar isn’t going to last.

      • That’s only if that 1% goes into fizz gold outside *their* grasp. So now, gold coin and gold bar sales to the shrimp is not what will blow up the status quo; the masses have been successfully brainwashed into believing the paper-wealth illusion. And *they* want to keep it that way, so *they* can get as much gold NOW as they can, before the hammer drops. The masses will be shut out, it’s been obviously planned like that and their scheme is working out wonderfully, so JPM and GS can stop all the remaining fizz silver/gold deliveries from the CONeX…

  8. I do long term charts, mainly monthly and quarterly. The trends and patterns they form are not unlike those you see in short term charts. The BIG difference is; the trends and patterns in the long term charts are more reliable. They also require more patience which means you make your money over longer periods of time rather than shorter periods of time. They call it common-sense, I think.

    BUT the most important thing about charts is, “THEY TELL YOU WHERE THE MONEY IS”! True? Now I don’t profess to be an expert in anything, so I do the next best thing, “I FOLLOW THE MONEY”, or at least try to. So, understanding technical analysis gives one an unemotional understanding of where the money is. Learn the skill and you might make a trader!

    Except for some moments in time GOLD is doing exactly what it should do; i.e. “REMAIN STABLE” except in turbulent times. Isn’t that what it is doing?

    I think they are some of the best charts you have done Steve. Especially the last one in the video. Very subtle.

    • GrahamB,

      Thanks for the feedback. Yes, I believe we are going to see some fireworks in the market in 2019. If we don’t get the Santa Claus Rally, pushing the Dow back above that 24,000 support level, it could get very ugly.

      steve

      • DisappearingCulture | December 18, 2018 at 10:17 am |

        Steve,
        I see oil breaking down at a hair over 47. I don’t know how that might affect the DOW in the next few weeks.

        • If oil closes under $50.00 for this month of December DisappearingCulture, I reckon it is on its way to $37.00

          • And BTW the price at the pump here in Australia does not reflect the downward price in oil in recent weeks. We are still paying around $1.40/Ltr when in fact it should be closer to a $1.00 IMO.

          • Anywhere in the world they are NEVER busy to lower prices at the pump. RAISING prices at the pump, THAT’s a different story altogether now… LOL

  9. David McCance | December 17, 2018 at 6:51 pm |

    Excellent report Steve. Now all the other precious metal experts can use this info to make their videos.

  10. Is the strategic petroleum reserve (SPR) being used to stabilize oil prices? My understanding is that in the past when oil prices spiked, some of the reserves would be released. Now that oil is below $45, is there any spare storage capacity whereby oil could be purchased and stored in the SPR to maintain a price floor?

  11. Oil crashed VERY VERY HARD today, by more than 7% I believe.

    But the paper contract prices for both gold & silver didn’t budge at all, in fact “paper gold” price went up!

    I can’t say I remember a day like that from any recent memory of last 5 to 6 years, when major downward oil price movement didn’t correlate w/ “paper metal” prices.

  12. I’m new here so forgive me for any silly questions but I just watched:

    https://www.youtube.com/watch?v=aUC6lsLr04I

    and their prediction is that there will be MORE oil available in the future due to the increase in sales/use of EV cars (and decrease in sales/use of internal combustion engine cars).

    How does this impact your research Steve with EROI and the precious metals?

    (The video is excellent if you’re interested in oil, EV and “ICE” Internal Combustion Engine cars in the future)

    • Bob,

      The manufacture of EV’s is very energy intensive. While an EV might not use gasoline or diesel to run, it takes a tremendous amount of fossil fuels in their manufacture. I don’t see EV’s making much of a difference in the 2020’s. The EROI of an EV is much lower than a regular gasoline engine, and the price tag is still too high for most consumers.

      Bob… the NUTS & BOLTS of the problem comes down to DEBT and the Falling EROI. Three-quarters of the U.S. Shale Companies are still losing money… and that was when the oil price was above $60-65. Currently, the producers in the Bakken are receiving $23.50 a barrel for oil, $23 less than West Texas Intermediate at $46, the standard oil price for the United States. The gutting of the shale oil industry is currently taking place now at a break-neck speed.

      I believe the Debt becomes too much of an issue going forward, thus global oil production will start to decrease, especially during a deflationary period as we are experiencing now.

      steve

    • Short but true DC. That’s why i posted the picture above. In an everything bubble, one has to be careful owning paper assets. But hey, we tell them all the time, don’t we?

      Merry Christmas!

      And don’t turn your back on the tree with all that beautiful glitter and glamour, before you know it the lights go out and it attacks you.

      • “glitter and glamour”…

        Tis the season to be materialistic and practice consumerism.
        Only, they forgot to tell the consumer! Latest sales numbers are grim.

    • That says it all DC eh? When you talk to people about this, the young ones will call you a conspiracy theorist, the older ones will tell you the government will not let it happen.

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