Investigating the Claim "Gold Demand Slumps to a 10-Year Low"

A Fox Business report states demand for gold is at a 10-year low. What's the real story?

Please consider Gold Demand Slumps to a 10-Year Low.

> For gold investors, the rising market volatility is no match for the currently growing economy, with gold holdings slumping to a decade low, according to the World Gold Council (WGC).

> The WGC reported that global gold demand fell to its lowest first-quarter level since 2008, falling to 973 metric tons in the first quarter of 2018, a 7% drop compared to the 1,047 metric tons in the first quarter of 2017.

More Luster in Stock Markets

Reuters reports U.S. Gold Coin Sales Slide as Stock Markets Show More Luster.

> U.S. retail investors are losing their appetite for physical gold as buoyant stock markets offer tempting alternatives, sending sales of newly minted coins to their lowest in a decade.

> More and more coins are also being sold back onto the market, further eroding demand for newly minted products.

> Gold American Eagle bullion coin sales from the U.S. Mint slumped to a third of the previous years level in 2017, their weakest since 2007.

> They were down nearly 60 percent year on year in the first quarter. Sales so far this month, at 2,500 ounces, are less than half last Aprils total, and a fraction of the 105,500 ounces sold in April 2016.

Contrary Indicator

For starters. retail investors dumping gold coins is a contrary indicator. And if they are dumping gold coins to buy Bitcoin or stock that is a contrary indicator for Bitcoin and Stocks.

What About Demand?

Actually, demand for gold bottomed in December of 2015.

How do I know? By looking at the price.

Gold Demand

As noted by the chart, demand for gold peaked in September of 2011. Demand bottomed in December of 2015.

Wait a second, you say, those are prices!

Yes, exactly.

Unlike silver, which is used up industrially, nearly every ounce of gold ever mined is available for sale.

Someone has to own those ounces. The price of gold represents the demand for gold.

Gold Up 31%, Retail Selling

Gold is up 31% but retail investors are selling their coins. That's a major contrary indicator.

Driver for Gold

The primary driver for the price of gold is faith in central banks. In 2011, there were worries the Eurozone would break up.

In 2012, ECB president Mario Draghi made a famous speech, declaring, "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."

Curiously, he did not do a thing at the time. The speech restored faith.

Gold vs. Faith in Central Banks

Faith on the Wane

Some believe the Fed is way behind the curve. Others thinks a deflationary bust is coming and the Fed will engage in more QE.

Pick your reason, but faith in central banks is on the wane.

Deflationary Bust

Given the amount of global financial leverage, I strongly suggest a deflationary bust is the most likely outcome looking ahead.

"If I were trying to create a deflationary bust, I would do exact exactly what the worlds central bankers have been doing the last six years," said Stanley Druckenmiller.

For details of Druckenmiller's excellent speech, please see Can We Please Try Capitalism? Just Once?

How will the Fed respond to a deflationary bust?

The obvious answer is more printing and more QE. I expect a move higher in gold similar to the move from 2009-2011.

Mike "Mish" Shedlock

Comments (17)
No. 1-17
JonSellers
JonSellers

"I expect a move higher in gold similar to the move from 2009-2011." I don't know. In 2009, everyone was expecting a total economic collapse similar to the Great Depression. Moving money out of financial assets into gold made a lot of sense. Of course, folks didn't have any idea the Fed would step in and make the banks whole on their bad investments, thereby just creating a nasty recession. Lots of folks got burned buying up that gold and may never see their money back. If we get another financial bust, I'm betting folks will use that opportunity to sell gold and buy stocks. It's what worked last time.

Bernie
Bernie

Great article. Thanks. But I wonder why was gold up 100% between end of year 1999 and 2007 ? Faith in central banks was quite good I think. What do you think Mish ?

caradoc-again
caradoc-again

Powell appears different so the old narrative may not apply but I would and do still hold just short of 10% gold.

caradoc-again
caradoc-again

Just shy of 10% gold.