There are many changing dynamics in the precious metals market which suggest that we are about to witness exponential, upward moves in prices for gold and silver — which dwarf the gains these metals made when they more-than-tripled in value.
For silver, it is a relatively straightforward issue of supply and demand: demand is surging in numerous areas, while decades of price-suppression has resulted in the evaporation of global stockpiles.
In the case of gold, however, the normal fundamentals of supply and demand do not apply. As a commodity which is never consumed, total stockpiles of gold grow every year. Conversely, even with a tripling in price, the supply of gold remains flat — despite the huge surge in Chinese gold production — suggesting that “peak gold” has arrived.
As a result of these different dynamics, what will fuel the explosion in the future price of gold are not supply and demand principles, but radical changes in behaviour amongst the major “players” in the gold market.
The gold market typically experiences seasonal weakness from roughly mid-Spring until September or October. This cyclical pattern was based on the buying habits of the Indian gold market — where cultural gold-buying during “wedding season” has dominated retail gold demand, since India has been the world’s largest gold market, historically.
In 2009, Indian gold-buying has completely evaporated. Overall, India’s gold imports were 75% lower for the first half of 2009, and this trend appears to be continuing — with imports 67% lower in July of this year compared to last.
Total gold demand actually fell by 9% in the second quarter versus a year ago, according to data from the World Gold Council.
In addition, the International Monetary Fund has finally received approval to sell some of its gold from the US Congress, and thus now appears poised to sell over 400 tonnes of gold.
Given this context, the natural assumption is that the price of gold would have a worse-than-usual performance in this period of seasonal weakness. Instead, gold has traded in a (relatively) tight 10% range, and as of this moment is little more than 5% below its all-time, nominal high.
What happened?
Part of the explanation for the unexpected resiliency of the gold market is the emergence of large-scale, retail buying by the Chinese. Chinese retail demand is currently only 2% less than Indian gold demand.
However, with Chinese growth in demand not quite offsetting Indian weakness, and with many less-informed commentators predicting that the IMF gold-sale would depress the gold market, clearly this does not account for gold’s better-than-usual performance during its period of seasonal weakness.
Instead, the primary support mechanism for the gold market at this time appears to be central bank purchases of gold. While the fall in Indian gold demand, and the rise in Chinese gold demand are both big stories in this market, they pale in significance to the fact that the world’s central banks have switched from being the largest sellers of gold to become net buyers.
In the first half of 2009, the world’s central banks bought 14 tonnes more in gold than they sold. This is the first time this has happened this decade. However, it would hardly be over-dramatic to say that this represents the biggest development in the global gold market in several decades.
Since the time when gold hit its all-time record-high roughly 30 years ago (when measured in inflation-adjusted dollars), the cabal of Western central banks has waged an unofficial ‘war’ against gold — doing everything in their power to depress the price of gold (and silver), since allowing gold to rise to its actual fair-market-value would expose their campaign of lies regarding inflation.
US president Richard Nixon effectively abolished the world’s “gold standard” as a backing for its “reserve currency” (the US dollar), when he announced that the US was defaulting on its gold obligations to the rest of the world, in 1971. A gold standard acts as a powerful “leash” on the world’s bankers by creating finite limits on the amount of new “money” (i.e. debt) which they can create.
Indeed, the US’s gold-default in 1971 proves this point with stunning clarity. It was specifically due to the vast creation of (then) unprecedented amounts of debt to fund the Vietnam war which made the US’s gold-default inevitable. This also illustrates the ‘unholy alliance’ between the world’s bankers and war-monger governments such as the US — since (as history has demonstrated) a gold standard prevents the exact sort of massive deficits required to stage large-scale warfare in our modern world.
Thus, for three decades, the US government and the anti-gold cabal of bankers have secretly waged war on gold — undermining the price of gold not only to lie about inflation, but also to undermine its obvious necessity as the only pillar of a stable, global monetary system.
However, there is a second, equally-evil reason why these actors have attacked gold to hide their inflation-lies. Inflation has often been called a “hidden tax”, since it decreases actual spending power even where there is no decline in nominal wealth. Historically, inflation has always hurt the poor and middle-class much more than the wealthy.
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