U.S. Gold Market Switches From A Surplus In 2016 To Deficit In 2017

The U.S. gold market suffered a net deficit this year compared to a small surplus in 2016.  This was quite interesting because U.S. physical gold demand will be down considerably this year.  In 2016, total U.S. gold demand was 212 metric tons versus an estimated 150 metric tons this year.  The majority of the decline in U.S. gold demand is from the physical bar and coin sector that is down 56% in the first three quarters of 2017 compared to the same period last year.

So, why will the U.S. gold market suffer a deficit if gold demand is down sharply this year?  Well, it seems as if the culprit is the huge increase in net gold exports.  Last year, the U.S. imported 374 metric tons (mt) of gold and exported 398 mt for a net 24 mt deficit.  However, this year, estimates for U.S. gold imports will fall to 250 mt while exports increase to 475 mt.  Thus, the U.S. net export deficit will be 225 mt in 2017:

However, if we look at all the data in the chart above, the U.S. gold market will experience a net 76 mt deficit in 2017 versus a 44 mt surplus last year (bars right-hand side of chart).  Again, we can see that U.S. gold imports are estimated to decline significantly this year to 250 mt compared to 374 mt in 2016.  Furthermore, total U.S. gold exports are forecasted to increase to 475 mt this year versus 398 mt in 2016.

When we factor in U.S. gold mine supply, domestic consumption, and gold scrap supply, the market will go from a small 44 mt surplus in 2016 to a 76 net deficit this year.

So, the question remains… what happens when the markets crack, and retail investors flock into Gold ETF’s as well as surging gold bar and coin demand?  This happened in the first quarter of 2016 when the Dow Jones Index only fell 2,000 points in a few months.  Gold ETF inflows surged to the second highest quarterly amount ever at 350 mt.  The all-time record of quarterly Gold ETF inflows took place during the first quarter of 2009 when the Dow Jones was crashing towards 6,600.  During the Q1 2009, Gold ETF flows were a staggering 465 mt.

While precious metals sentiment is currently depressed due to the surging Stock and Cryptocurrencies, at some point, we are going to see a crash in these two markets.  The amount of leverage in both markets is off the charts.

I believe the next market crash will cause more investor FEAR than ever.  We could see Gold ETF inflows surge above 500 mt while physical bar and coin demand beat all records.

Interesting Chart On U.S. Mine Worker Gold & Silver Productivity

When I was looking at the U.S. Gold Market data, I came across some interesting statistics on worker mine productivity.  According to the USGS data, the U.S. gold industry employed 12,000 mine workers in 2016 to produce 7.1 million oz (Moz) of gold.  In the U.S. silver mining industry, 785 workers produced 23.2 Moz of primary silver.  While total U.S. silver production was 37 Moz in 2016, 13.8 Moz was a by-product of base metal and gold mining.

In the USGS 2014 Silver Yearbook, they break down the top silver mines in the United States.  There were only three primary silver mines in the country.  These included the Couer’s Rochester mine in Nevada, Hecla’s Lucky Friday Mine in Idaho and American Silver Corp’s Galena mine, also in Idaho.  The combined silver production from these three primary mines was 23.2 Moz.

If we take the number of mine workers and divide by U.S. gold and silver production, we have the following:

Each mine worker in the gold industry produced 595 oz in 2016 versus 29,550 oz of silver.  Thus, each mine working in the primary silver industry in the U.S. provides 50 times more silver than their counterpart in the gold industry.  By taking this a step further, each U.S. mine worker produced 1.6 oz of gold a day compared to 81 oz of silver.

Not only does it take a lot more human labor to produced gold than silver, it also takes a lot more fuel.  According to data, I put together for 2014, Barrick consumed nearly 21 gallons of diesel to produce one ounce of gold while Pan American Silver only consumed 0.2 gallons of diesel to produce an ounce of silver.  Thus, it takes 100 times more diesel to produce gold than silver:

Investors need to understand that the price of gold and silver are based on their cost of production, not the ratio extracted out of the earth.  For example, the world produced 886 Moz of silver in 2016 compared to 104 Moz of gold.  That is a silver-gold mine ratio of 8.5 to 1.  Some readers suggest that the price of silver should rise to the same extraction ratio to gold.  Thus, that would be approximately $154 silver.

However, the reason gold and silver were valued closely to the ratio they were extracted out of the earth in the past was due to the mining method.  In the past mining was done mostly with human and animal labor.  Thus, the 10-15/1 historic gold-silver price ratio was valued based on the extraction ratio.  Today, the energy we use is mostly from coal, natural gas, and oil.  These carbon-based fuels have distorted the cost of production.

According to my last estimate, the primary gold mining industry’s breakeven was between $1,100-$1,150, and the primary silver mining industry was $15-$17.  Thus, the cost of production ratio is 70/1.  The gold-silver cost ratio is very close to the current gold-silver price ratio of 76/1.

Lastly, the cost to produce gold and silver will no longer function as their MARKET VALUE in the future.  The value of most commodities are based on their cost of production, but gold and silver also act as high-quality STORES OF VALUE.  When investors finally realize that their wealth investing in STOCKS, BONDS, and REAL ESTATE will continue to vaporize when the stock markets eventually crash, then we will finally see silly crypto price moves in the precious metals.

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62 Comments on "U.S. Gold Market Switches From A Surplus In 2016 To Deficit In 2017"

  1. Michael Kohlhaas | January 5, 2018 at 6:48 pm | Reply

    Thanks for the facts. Cannot hear that stupid talk of the so called gold bugs.

    • Bix Weir says that things have changed and billions will die if all we have is gold & silver because gold & silver can’t work with ‘just-in-time’ inventory systems.

      https://www.silverdoctors.com/headlines/world-news/bix-weir-were-building-a-cryptocurrency-way-out-without-any-help-of-government-regulators-or-banks/

      • Bukharin,

        Unfortunately, Bix Weir is not a credible source that I would follow. However, he is probably correct that gold and silver can’t solve the monetary problems, but the system is going to collapse with or without precious metals.

        The biggest problem I have with Bix Weir is that his analysis is flawed because he comes up with a theory and then tries to find information that supports it. For example, his Road To Roota Theory that suggests that the FED is actually printing money to deliberately destroy the Dollar, makes no sense whatsoever. He then says that when the Dollar dies, the U.S. will then produce all this hidden GOLD & OIL.

        That theory is wrong on so many levels, I am surprised people still follow him.

        Bitcoin and the Cryptocurrencies are not going to deliver what they have promised. I can tell you from first-hand knowledge, the crypto market is wrought with fraud. The only reason people are getting into cryptos is due to the skyrocketing price.

        Regardless, the U.S. and Global Economies are going to collapse due to the FALLING EROI. It just can’t be stopped. When this occurs, the assets that will protect wealth or at least offer better options than most anything else will be GOLD & SILVER.

        steve

        • Michael Kohlhaas | January 6, 2018 at 9:47 am | Reply

          Just look at Saudi Arabia. They doubled the price of gas, introduced VAT, don’t pay anymore subsidies to Royal family members. The golden time are over for these camel shaggers.

        • Alex Jones and the InfoWars team would suggest that yes indeed they are printing to destroy everything. This is how the make money and we don’t

        • Steve,

          Your expert analysis on silver, gold & energy is great. Your non-expert analysis on crypto is underwhelming. You present facts, data and evidence for PMs & oil. You present conclusions and anecdotal evidence for crypto. You called a bitcoin top at $11,400. You know “first hand” that crypto market is filled with fraud? How so? If by fraud, you mean it is truly a free market where anyone (globally) can gain/lose money, then yes. PM markets are manipulated (fraud), stocks & bonds have HFTs & crooked Wall St banks & brokers front running (fraud). Crypto is the least fraudulent market – but of course it can be manipulated by large holders like any other market. You also stated in the blog post that:
          “While precious metals sentiment is currently depressed due to the surging Stock and Cryptocurrencies, at some point, we are going to see a crash in these two markets. The amount of leverage in both markets is off the charts.”
          Again I see no data. Leverage in crypto? How so? Unless you are referring to people buying on credit card? There is margin trading of course, but I would speculate that leveraged trading is less in crypto than in stocks. We don’t yet know how a big bear market in stocks will effect crypto because it hasn’t happened yet. Why do you believe they will have a high correlation? I can see crashing stocks, and people fleeing to the safety of bitcoin, but who knows.
          Will I get a reply (finally)? Doubtful.

          • SD,

            While you are correct there is fraud on Wall Street, the fact remains if you are a company and you pay someone to BOOST YOUR STOCK TRADING, and you get caught, YOU GO TO JAIL. You cannot legally pay someone to PUMP up your stock. While it occurs in the markets, it is still illegal to do it. Also, it is true that there are MARKET MAKERS in the stock market. And yes, there is front running going on by getting the fastest computer closer to the NYSE as possible. But, that is a Market Maker.

            YOU AS A COMPANY CANNOT PAY SOMEONE TO BE A MARKET MAKER…. or you go to jail. However, this is taking place BIG TIME in the crypto space.

            Yes, you are correct that I cried Wolf with Bitcoin. Even technical analyst, Clive Maund said the same thing when he made is BITCOIN WIPE-OUT ALERT towards the end of 2017.

            Regardless… Bitcoin, Ripple and many of the cryptos will not produce the results they have stated. Thus, the only reason why there is interest in them because they have gone up exponentially. Ripple does not need the coin to function in the banking industry. Also, Bitcoin is so damn slow and consumes so much energy; it is a huge waste of time.

            steve

          • Michael Kohlhaas | January 7, 2018 at 6:59 am |

            … and people fleeing to the safety of bitcoin

            Too funny!!!

          • Cryptocurrencies are not Legal Tender. The banks will milk cryptocurrencies for as much as they can before they pull the plug. Banks cannot tolerate competition.

            Goggle “All Governments lie”

        • Steve, thanks for your reply (for some reason the “reply” button isn’t available next to your most recent comment). First off, Ripple (XRP) is hot garbage. It is owned & controlled by banks. It is not decentralized or trustless. Imagine if Satoshi created 21 million bitcoins, held 13 million for himself, only allowed a handful of his buddies to verify transactions, and promised it would change the financial world forever. That is the comparison of Ripple to Bitcoin. Nobody would have adopted it. But a bunch of people who think Ripple is “cheap” and want to make money, but don’t understand why crypto matters buy into Ripple. I don’t care – it is a free market and they will likely get wrecked one day. Losing money can be a valuable life lesson. Know what you put your money into, and never invest more than you can afford to lose.

          As to paying someone to pump a stock, what does Jim Cramer do all day if not pump stocks to the public on his stupid tv show? Crypto is global. The US can’t write the laws for the world. People need to take responsibility for their own investments. People will lose money following hype, and after they learn, perhaps they will lose less money the next time. That is how quality, ingenuity, and amazing tech rise to the top, and the scammy crap falls to the wayside. Once enough people get burned following hype, they will (hopefully) learn. Perhaps we don’t need big-daddy government protecting us from our own bad (investment) decisions.

          Programmers, software engineers & hosting services don’t want to be paid in crypto? Not even a portion of their salaries? I find that a bit odd. These are the types who got into crypto early and are usually the most supportive of the crypto space. Perhaps you are trying to hire the wrong type of people, or aren’t offering competitive salary pricing? CDX still isn’t even listed on CoinMarketCap.com so your team is way behind the power curve already.

          Your main objection is that exchanges won’t cash you out to 6 figures quickly in dollars. And therefore you believe they are over-leveraged and don’t have the cash to support the bitcoin prices. This is possible. I’ve never tried to withdraw 6 figures, but I’ve done 5 figures without a problem. And I could apply for a larger daily withdraw amount but I don’t have the need to. How long have you been a customer with these exchange(s)? They also have to be concerned with hacking/fraud. So if you are a new customer who recently ripped somebody off, transfer your ill-gotten 1,000 BTC to their exchange and want to immediately cash out – that will send up red flags for them. If you are a customer of 3 years with established identity and a historical record of transactions with them (as I am), I doubt you’d have the same problems cashing out. Coinbase has a customer service number to call, have you tried that? What reason have they given you for refusing to cash you out if you have fully proven your identity via KYC policies, and have the bitcoin to do so?

          We are at the beginnings of stage 1 with crypto. It is still so early. The whole point of crytpo currencies is to not “cash out” to fiat. It is to trade goods and services within crypto. Of course we aren’t there yet, but as an early adopter you understand there are hurdles and inconveniences to overcome. Once we have solid decentralized exchanges, lighting networks, atomic swaps and more – these centralized exchanges will slowly become merely fiat to crypto conversion centers. But once enough companies start paying their employees in crypto, and those employees are buying goods & services in crypto it becomes a network effect. It starts small at <1%, and then it becomes 5%, and then 10%. Then if you work in Silicon Valley and you aren't paid a portion of your salary in crypto, it will feel odd. Bitcoin is transitioning into the store of value crypto, while others become better payment systems. In the crypto world it is relatively easy to change between them and the user interface will get better with time.

      • On the SGT Report on 5th July 2015 he predicts a September Collapse of the Markets and Financial system possibly in line with the “Shemitah” but he did add the comment “But I don’t know if they can hold it together for that long”.

        Source: http://illuminatisilver.com/video/bix-weir-genius-or-misguided/

        • Later market calls were made in 2016 and 2017. Now for sure markets are going to crack in 2018. It is misleading investors and undermining confidence. Steve, when is your market call?

      • DisappearingCulture | January 6, 2018 at 8:45 am | Reply

        “Bix Weir says that things have changed and billions will die if all we have is gold & silver because gold & silver can’t work with ‘just-in-time’ inventory systems.”
        Most people who have thought about currency, money, and our current economic systems knows that. It is quite elementary. But gold & silver can [partially] back digital-based currency systems.

      • robert sinclair | January 7, 2018 at 1:53 am | Reply

        On a gold standard, gold is the measure of value and it does not to have physically change hands in every transaction. All purchases are measured in ounces or grammes. The existing systems would work fine, the only difference being that notes and obligations issued, would be a claim on gold held by the issuer, and would be redeemable in physical gold and that the country’s.
        monetary base would be equal to their gold reserves and individuals could save gold instead of accumulating someone else’s debt.
        Silver could also be part of the same monetary base with its value against gold left to the market place and once again measured in ounces
        It would be a moral honest system compared to today’s fraudulent ponzi scheme.

        • Bix Weir said that most of the gold is in bad guys’s hands. Back to the gold standard means we empower the bad guys to enslave us longer.

          • The one thing I take from all of this is there is great uncertainty right now.
            IMHO one should hold a little of everything because when this thing falls apart the one good thing should rise enough to cover all the others.
            Again IMHO one should hold food, water, PM’s, cryptos, cash, seeds, best sleeping bag money can buy, garden spot, chickens, goats, gasoline/propane stored, medical supplies, be Biblically sound, lead and a good lead regurgitation, and above all a close circle of friends.

  2. You are correct in your analysis up until the point that you predict a move up in gold and silver. This is wrong.

    As we’ve already seen (thereby having nothing else to prove) gold and silver can be managed down to their cost of production, by issuing more paper, derivative products, using naked shorting, etc. Therefore, the following is true of gold and silver:
    -the floor is set by the production cost
    -the high is set by a vague psychological sentiment, before people begin to value dollars more highly, and the banks come in to short

    Conclusion: gold and silver will only rise slowly to match their cost of production. There will be no bull market.

    Gold and silver already reached their highs in 2011. They have come nowhere near that since. Let me repeat: in 7 years, gold and silver are nowhere near their highs, while stocks, real estate, cryptos, and everything else continue to surge to new all time highs on a daily, monthly basis.

    What more can I say? You guys are utterly wrong, you’ve been wrong, and you should be issuing apologies to everybody who stacked gold, or silver, in the hope of a windfall. We have not even even preserved our capital, as they have not kept pace with inflation.

    • “Conclusion: gold and silver will only rise slowly to match their cost of production. There will be no bull market”.

      Sorry but China, Russia and a host of other countries would disagree with you. They are building an alternative to the disgracefully corrupt US$ based and western controlled financial system. Gold clearly looks like it will have a major part to play in this rival system. Many people out in the world have just about had enough of the never ending lies, BS, cheating, fraud, as well as the wholesale looting and pillaging of resource rich countries in the name of terror by the US and their “friends”. I can tell you that there will plenty of countries happy to take part in this new financial system.

    • DisappearingCulture | January 6, 2018 at 9:23 am | Reply

      Given the MASSIVE and continuing documentation of manipulation of G & S priced in dollars, anyone who doesn’t know this is the reason [not free markets] the price has languished, is ignorant indeed. And anyone without the ability to see this situation won’t last forever is short-sighted.

  3. Tore Johansson | January 6, 2018 at 3:40 am | Reply

    My question is why production of gold is 70 times more expensive then silver when gold/silver ratio in earth is less then 10?
    Does it has to do with that fact that silver almost is an biprodukt from other mine operatings?

    • Tore Johansson,

      The production cost ratio of gold to silver is not based on by-product mining. I have done many cost analysis in the past using the Primary Gold & Silver Mining. Thus, it cost 70 times more to produce an ounce gold than it does to produce an ounce of primary silver.

      Again, my estimated break-even for gold is $1,100-$1,150 and for primary silver, it’s $15-$17.

      steve

  4. I think you wrote this post sometime in late (December?) 2017, but it has a posting date of January 5, 2018. Unfortunately, it’s using ambiguous words like “last year”, “this year”. After reading it multiple times, I figured out what you were referring to. But on first read, for an unsuspecting reader the ambiguity can cause a lot of confusion.

    Might be a good idea to edit the post, replacing:

    “last year” with 2016 &
    “this year” with 2017.

    Thx!

  5. I was watching an interview with Greg Hunter and Danielle DiMartino Booth, she is an ex-Fed employee from the Dallas Fed. In my opinion she has a lot of system credibility. One thing she said is that when Gold starts to rise…”Katie bar the door”. She thinks we will have a crash this year and Gold will be one of the few safe haven assets available. One way to understand her sentiment: When Gold and Silver are recognized more for their monetary store of wealth and less for their commodity roles then we will see a higher Dollar price, and “Katie Bar the Door”. The next monetary crash could be the signal for the Seneca cliff dive. If so, we won’t be rebounding off the floor. If we do start the Seneca Cliff Dive I think it would be wise not to read too much into the Dollar value of Gold. A Dying currency can’t be trusted as a benchmark to measure goods and services. I wouldn’t sell PMs even after a 10 bagger. The temptation would be very strong to “lock in gains.” I would however, sell my cryptos and PM miners to lock in gains and continue prepping for things that might actually have more value in the longer run, but at the time might not be recognized as valuable beyond measure…guns, grub, and resiliency. Most won’t recognize the Seneca Cliff. If the markets crash and Gold skyrockets I’d be finalizing my preps and selling off paper commodity assets into the market while the Dollar has purchasing power. I think we should all consider what happens when Gold and Silver start becoming stores of value and their commodity traits become less meaningful. It could be the signal for something much bigger then Dollar gains on a bank statement. Its a good idea to think about this while we have clear heads unclouded by massive Dollar gains. Its wise to consider the Seneca Cliff and how our society would react to such an event. It would be a never ending process of decline. Spirituality and internal fortitude will matter just as much as guns, grub, and gold.

  6. Tore Johansson | January 6, 2018 at 9:47 am | Reply

    Yes, that is an fact, but my question is why?

    • Tore Johansson,

      I don’t follow your train of thought. The total costs to produce GOLD & SILVER are between $1,100-$1,150 and $15-$17 respectively. I don’t know how to better answer your question. When we add up all the costs, that is what it takes in DOLLARS to produce Gold and Silver. Now, I can’t make it any plainer than that.

      steve

      • Cost is not the same as value or worth. Just because it cost that doesn’t mean people will be willing to pay that for the end product. Somethimes it’s better to buy a used house than to build a new one.

    • Billy lone Bear | January 6, 2018 at 3:45 pm | Reply

      I understand exactly what you mean in terms of cost of production. If silver is 10x rarer than gold why does igold cost more than 10x to produce. No matter what the material whether it is gold, silver, copper etc, many of the costs will be exactly the same such as management, shipping, minting, commission. Remember also gold was trading at $300 in 2000. I think gold and silver are both good buys but I just don’t buy that gold production costs are $1000 an ounce. I would bet somewhere in the $400 to $600 range. Just like Silver is probably somewhere around $12.

      • Billy Lone Bear,

        While you are correct that gold was trading at $300 in 2000, the price of oil was also $19 a barrel. Furthermore, the average ore grade of the top primary gold miners has fallen more than 50% since 2005. It’s probably closer to 65-70% in 17 years. Thus, the mining industry has to move a lot more ore at a much higher cost because oil is now three times higher as well.

        Also, according to the scientific data, there is approximately 0.07 ppm Silver and 0.0011 ppm Gold in the earth’s crust. If we divide the 0.07 Silver by the 0.0011 Gold we get a ratio of 64 to 1. According to my data on the falling ore grades in the mining industry, the Gold Industry is producing gold now at about 0.06 oz/t and Silver Industry is producing silver at 4.0 oz/t. If we divide 4 oz of silver per ton by 0.06 oz of gold per ton, we end up with 67 to 1 ratio.

        Thus, the GOLD MINING INDUSTRY has to move 67 TIMES more ore to produce an ounce of gold than does the SILVER MINING INDUSTRY to produce an ounce of silver.

        Lastly, the primary silver mining industry has also seen its average ore grade fall by 50% since 2005. So, the primary silver mining industry also has to MOVE TWICE THE ORE today to produce the same amount of silver. You add on top of that the oil cost is 3 TIMES HIGHER and you get the following:

        PRIMARY GOLD MINING INDUSTRY BREAKEVEN = $1,100-$1,150
        PRIMARY SILVER MINING INDUSTRY BREAKEVEN = $15-$17

        Now, Billy lone Bear, I have done extensive research on all of this, so if you don’t follow my analysis… you are more than welcome to pull whatever number you want out of the air if it makes you feel better.

        steve

        • Steve,

          The data seems to support you position that it is the production costs that determine the prices of gold and silver and their ratio. The mining costs in labor and fuel as well as actual relative production amount ratios further bear that out. The question is when gold and silver become fully re-monetized will supply and demand take over the pricing mechanism and, if so, how will that change their relative prices and the ratio?

          Thanks,

          SteveW

        • I don’t see how this is making any sense. If there is no oil because we ran out does that mean silver and gold are worthless? No. They are much more valuable.

        • Thanks for this clarification. I couldn’t understand why gold production took a much larger amount of fuel per ounce. So it’s due to the amount of ore that must be moved and crushed.

        • Tore Johansson | January 7, 2018 at 4:29 am | Reply

          Ok, this text explains what I was asking for. Because I always did read that it is 10times more silver than gold. If ur numbers of about 67 is correct it will explain that big difference between mining cost of gold and silver.
          But from where is those numbers of 10 times coming from?

      • 400-600 is too little. Anyone can do his or her own research. I.e. see http://www.barrick.com/investors/news/news-details/2017/Barrick-Reports-First-Quarter-2017-Results/default.aspx (look at APPENDIX 1 – Updated 2017 Operating and Capital Expenditure Guidance , AISC column), or:

        https://www.firstmajestic.com/_resources/assets/docs/fm_corporate_presentation.pdf , see page 9 and 10 for AISC regarding silver.

        In the past I went through some junior miners’ reports and some of them couldn’t get AISC of gold under 1050. That was for 2016. Barrick is huge gold producer so no wonder their total AISC is 720-770 as per that report, but my personal (financial) bet is these numbers will increase as soon as mining goes deeper and deeper under ground.

        In addition look at http://www.kinross.com/news-and-investors/news-releases/press-release-details/2017/Kinross-reports-2016-fourth-quarter-and-full-year-results/default.aspx , that’s forecast for 2017:

        All-in sustaining cost per Au eq. oz. $925 – $1,025

        Steve is right on this.

  7. Because steve acts like jeff christian when jeff said demand without coin/investment demand , from his study are parallel to price.
    Yet steve defy jeff although deep state jeff gave his chart as a proof.
    Amd now, steve is doing the same thing .. that his cost for silver mining claimed to be around 15 to 17, which is based only on primary silver mines that were only make only around 20 to 30% if annual silver production.
    He is unable to explain why his analysis does not relate to secondary silver mining.
    I m not saying he’s is wrong, it is just he doesnt have enough knowledge about it, just like his evil twin jeff. Steve is the good one of the two, problem is they re twin.

    • DisappearingCulture | January 7, 2018 at 10:52 am | Reply

      “He is unable to explain why his analysis does not relate to secondary silver mining.”
      Wrong. He can explain all of his analysis. You haven’t been following his column for long apparently.

  8. The principal flaw in Karl Marx theory is that all goods should be priced at the cost of production. This is flawed because goods are priced at the value the consumer desires them not at cost. The difference in gold is that the banker and government Marxists are suppressing gold to its cost of production. When this central bank suppression ends, the price will rise.

  9. Can you read charts Steve? I have Gold collapsing to under $800 early 2019 then rebounding strongly to $3000 in 2020? This is based on technical analysis not world events.

    • show me the chart you are using

    • So, you are modelling the gold price manipulation? If you have special insights in that respect, then the question is if you are not one of ‘them’.

    • DisappearingCulture | January 7, 2018 at 10:58 am | Reply

      “Can you read charts Steve? I have Gold collapsing to under $800 early 2019 then rebounding strongly to $3000 in 2020? This is based on technical analysis not world events.”
      Technical analysis is crude at best. Do you really think gold will be sold at less than cost of production? The only way that happens is a pre-existing contract, like a gold streaming contract that provided upfront cash payments to a mining company.

  10. Great article here Steve — I also really found useful your Silver Chart Report. I’ve always wanted to know the reason for the dramatically increased silver-to-gold ratio up now around 67:1 instead of the historical norm of 15:1 from past centuries, and you explained it for the first time very clearly for me based on the production cost data you supply here!

    For that historical ratio of 15:1, I always thought silver was grossly undervalued compared to gold as I felt a reversion to that mean would eventually occur as well as the fact (as you already state) only about 8.5:1 silver is produced relative to gold with over half of that amount each year being consumed in mostly unrecoverable industrial purposes where gold is almost all recovered. I still believe silver is undervalued relative to gold, but I’ll admit you kind of burst my bubble about silver, lol. (I buy mostly silver)

    I do have a question for you though. You mention that the three primary silver mines in the USA produce the 23.2 million ounces of silver per year which works out to the 50:1 production cost ratio compared to gold. However, since as I think I understand the majority of silver comes from secondary mines where zinc and lead may be the more primary products from the mine, my question is: would this help defray some of the costs on silver such that it would push further the relative price ratio of silver-to-gold from the 50:1 you calculate to much higher such as what we are seeing now into the 70:1 range?

    Finally, I would just like to make another comment about a few of the comments above about Bix Weir. Yes I feel his material is far-fetched and sensationalist. Gold mining expeditions into the grand canyon area over last 200 years have revealed very sparsely-populated amounts of gold dust not making it worth any viable gold production operation. I don’t listen to him any longer. Your writing is very clear and has that distinct ring of truth sound. For this reason, I would like to draw your attention to something I think you would be interested in, as I think you share similar beliefs and to be quite honest, I would look forward to reading your thoughts about this topic in any future articles of yours. Over the Christmas holidays, http://www.macrovoices.com did a 5-part podcast series entitled “Anatomy of the US Dollar Collapse” where the host and three other hedge fund managers/investment advisers debated how the petrodollar system is no longer functioning properly since 2007. It explores how countries such as Russia and China are taking steps to move away from the petrodollar system by buying gold among other actions, since the US has not really done anything to fix the system and still will not admit anything is wrong with the system. It is top notch and really gets into the behind-the-scenes geopolitics and economics of the last decade, and like with your material it has the distinct ring of truth, and I learned so much. I highly recommend, and would look forward to reading your thoughts on this topic.

  11. I borrowed this from some genius who previously posted it on this site.
    My friend has this framed on his wall. Remember everyone there are 7 billion people om the planet…..
    JP Morgan said it best:
    “Gold is money. All the rest is credit”.
    Credit, just another name for debt.
    And debt is the lot of the slave.
    Barter is the medium of the peasants.
    Silver is the money of gentlemen.
    Gold is the money of kings.

    Keep up the good work Steve!

  12. “Lastly, the cost to produce gold and silver will no longer function as their MARKET VALUE in the future.”

    Any guess as to the direction of the GSR when this time comes? As another reply noted above, many have been led to invest primarily in silver over gold thinking that the ratio will revert to geologic ratios when stresses arise. Some of this was seen during the most recent season of economic unpleasantness, but not to the degree many expected.

    • DisappearingCulture | January 7, 2018 at 11:13 am | Reply

      Lynn,

      As you are probably aware, historically the GSR has moved closer when the prices in fiat rise rapidly. Of course there are historical charts that document this http://www.macrotrends.net/1441/gold-to-silver-ratio This particular source goes back to 1915; of course silver was used as money worldwide into the 1960’s. Now silver is “valued” mostly as an industrial metal, while gold is still money in international transactions. Also gold is actively acquired now by central banks & sovereign nations [Russia, China etc.]. In the next bull market the GSR may not approximate as much as it has in the past…but it could for reasons you may already know [limited supply, lower cost].

    • No, but I give you my personal rough GSR when I will start selling silver. The analysis is simple. Silver comes out of the ground at ~10x gold and roughly half of it is constantly being used up by industrial applications etc., never to return. With say 200 000 metric tons of physical gold (much less than that controlled by the CBs and bullion banks) that would put the stock of all available physical silver at roughly 1 000 000 metric tons; when gold and silver turn out to be the ultimate store of value (backing all fiat and debts) I would think a GSR has no problem reaching 5 (or lower, depending on how much silver there *really* is left). Sounds outlandish ? We’ll see. I’m currently stacking at a rate of 23 ag oz to 1 au oz. and am in no hurry for any silver price spike. Just keep the repression going for a few more years because when this thing turns (and the paper markets break bcs neither paper “shorts” nor “longs” have the actual metals and are factual *real shorts*) then watch in awe as the metals gap significantly higher in fiat terms.

  13. This is by no means an advertisement for goldmoney. I started an account almost two years ago and have been putting money into it every week. I decided to redeem my gold to see if it would actually work as advertised and it did. I had my 2 gold maple leafs and 10 silver maples in a week. The reason I bring this up is to let anyone on this message board it worked at least for me. I understand personal experience is not proof. I haven’t used the goldmoney card you can get so I have no review of that. Once again not an advertisement I’ve just seen some people on the message boards say they have an account with them.

  14. Steve: You state production costs for silver at $15 to $17. What happens to the retail price of
    silver if demand triples for coins and bars, then production requirements grow at 7 to 10% per
    year for all industrial requirements in the future?

    • Joe Lindell,

      I have no idea what happens to the silver price if physical investment demand triples. Although, if it happens during a market melt-down than I would assume we could see much higher prices.

      Joe, you keep looking at the silver price or other prices based on SUPPLY & DEMAND. I no longer do so. However, FIREWORKS in the precious metals will take place when investors like you finally realize they are the BIGGEST BAG HOLDERS IN HISTORY by owning most STOCKS, BONDS, & REAL ESTATE when the U.S. and GLobal Oil Production experience cliff like declines.

      Now, I don’t know when the markets finally CRACK, but they will.

      You say the markets will continue for 10-20 years, I say 2-5 at most. Let’s see who was right or wrong.

      steve

    • Steve……If..if…IF, a fraction….just a small percentage of these new, “BTC millionaires” that once thought of themselves as -Ron Paul End The Fed- people, would go to SDBullion or JMBullion and other places that take BTC & use thier BTC —while they still can/still have that option….and buy Silver Bullion…to the point they bought up ALL the inventory at online dealers……the squeeze would be on & the farcking TPTB would be screwed on the paper market silver game they’ve been playing…..there, my Friends, is why Crypto’s are HUGELY IMPORTANT~~~

      With mouse click buys online, they could do the whole, “Why doesn’t someone like Eric Sprott, just go buy up all the available silver and corner the ‘tiny lil silver market’ “thing peeps been cryin’ for, for so long….the table has been set… and no one person needs to worry about flights he might be taking, if ya are tracking w/ me….

  15. Diogenes Shrugged | January 8, 2018 at 10:49 am | Reply

    “The energy picture confirms that this is correct.”
    http://market-ticker.org/akcs-www?post=232757

  16. In 1977 a man made an invention that goes in the engine of the car so it would take a 1970 Ford Galaxy a 5,000 pound car 100 miles to the gallon. 4 years later at the age of 31 he was dead. Can anyone figure out why?
    http://elpasotimes.typepad.com/morgue/2008/04/200-miles-on-tw.html

    We have plenty of energy. The problem is the people behind the energy

    • DisappearingCulture | January 8, 2018 at 3:26 pm | Reply

      I don’t believe a 5,000 pound car got 100 miles to the gallon; not even close. With modern fuel injection it would have been hard pressed to get 30.

      As for the problem being the people behind the energy…the people at the top are almost always part of the problem…but not becasue they rig cars to get lower mileage.

    • “4 years later at the age of 31 he was dead. Can anyone figure out why?”

      I think I figured out precisely why he was dead at the age of 31. Because that’s how old he was when he stopped breathing.

      Otherwise to solve your mystery I suggest that you look at the energy that is takes to run a 5000 pond car at 40 mph for a total time duration of 2.5 hours using the formula E=time*0.5*mass*velocity^2 and then go look up the total energy in BTUs or joules that is available in one gallon of standard gasoline using google. I think you’ll be pleasantly surprised that my conclusion regarding the man’s breathing is spot on.

  17. I think the hoarding of the Asian tells us something about the future of gold, more than we may realize. I’m a little anti-deficit since it’s all sitting around doing nothing except being used as a hedge. Price is up because interest is low and going negative, fiat devalued by inflation, may as well exchange some of your fiat into something tangible. Gold could be priced up if energy prices were not so low as well. It’s a relic. Crypto, oh my talk about money chasing anything that moves, appears to move, or can be priced in fiat terms.

  18. I like the work done on this site, in general, but the terminology being used in this article is a bit suspect. “U.S. gold demand was 212 metric tons versus an estimated 150 metric tons this year.” This does not translate into a deficit. All this means is that total demand exceeded expectations. Hence we would have expected the price of gold to increase to bring demand and supply back into equilibrium, all other things being equal. And surprise! This is exactly what we saw as price moved roughly from 1175 to 1275. The rest of the analysis seems speculative at best.

    • Bob M.

      Why don’t you do yourself a favor so you don’t look silly and READ THE ENTIRE ARTICLE fer pete sakes… LOL. If you read the entire article and look at all the FIGURES in the nice charts, you would see that it adds up to a DEFICIT.

      Please try again.

      steve

      • I read it and I get your reasoning. But it doesn’t mean that it isn’t “speculative” or plain old wrong. I won’t be the final arbiter of that because once the first logical fallacy is injected into the discussion, it calls into question the remainder. I get your math, you added the reported supplies and demands of metals and found that they don’t add up. My point is this: so what? Price always adjusts to bring supply and demand back into equilibrium.

        Next consider the accuracy of reported numbers. I trust private industry numbers far more than government, but they are subject to error. Does that account for the -76? Does your methodology?

        Again I say it’s irrelevant as the market drives the price (as manipulated as it is, there is an underlying fundamental otherwise we’d see gold at 5000 now). Price increases as a response to demand. That’s all you need to know. The laws of economics have not been rescinded, just bastardized by the Fed and their bankers.

  19. Thank you Steve
    for all your hard work and brilliant analysis.
    Oil will probably go to $70 a barrel by the end of January and I expect the price of silver and gold to follow suit after the surplus oil in storage is used up.
    This will give us a ratio of oil price to the price of gold and price of silver.
    This assumption is based on what I have learned from you and Gail Tverberg and Chris Martenson.
    Have I erred? If so please help me make my perception adjustment.

    • R.Frank,

      While the price of oil may indeed reach $70 by the end of the month, there are TREMENDOUS FORCES suggesting lower prices will prevail. Here is a chart on the record amount of COMMERCIAL SHORTS in oil:

      Right before the oil price fell from $105 in 2014, the Commercials had built up short positions of 500,000. However, as of the last COT REPORT, the Commercials now hold 648,000 short positions. So, it looks as if we are going to see a quick move lower for the price of oil within the next 2-4 weeks.

      steve

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