Supply, Demand and Price

The CEO of the Perth Mint gave a presentation to the WA chapter of the Australian Institute of Company Directors on Wednesday that I thought I'd share with you. It was only three slides as it was a 10 minute slot. All of the figures behind these charts come from the World Gold Council.

First up is quarterly known supply.

Key take away point is that while the various supply sources change from quarter to quarter, overall it is relatively consistent and more importantly, bears no correlation to the gold price. The second chart is known demand, with an emphasis on "known".

Now this is a bit more variable than supply, but again there is no clear correlation to the gold price. I should note that known investment means coins, bars and ETFs but does not include over-the-counter professional trading.

The fact is that even if we did know the unknowable (such is the nature of the gold market, it is a secretive thing) demand would equal supply anyway. Also consider that the data is not perfect, that classifications may be wrong (eg how much of Indian jewellery demand is really investment demand).

So how to get through this. The next slide takes an admittedly simplistic approach and says lets look at non-investment supply (primary mine supply and scrap - we assume that scrap is not investment bars for example) and take away non-investment demand (industrial and jewellery - again not a perfect assumption about jewellery).

What this number then (approximately) represents is net investment. You'll note that when it was negative the price was flat and when it was high the price rose. Not perfect correlation and it could be improved with more accurate source data, but hey, you're getting what you pay for.

Restart the bubble

An interesting statement buried in the comments to Steve Keen's latest blog entry (which itself is worth reading as it discusses how neoclassical economics got us into this mess and how [if] it can be changed - as usual with the Keen blog, the comments are just as illuminating):

I have spoken to many whom I thought educated and found a pattern. Those in debt or those that stand to lose from asset deflation wants the bubble restarted.

... and those who didn't get into debt, saved prudently and/or bought some gold, don't want it restarted, I'd add. The observation is that the former are in the majority, but this doesn't mean they will "win". I think they are all waiting for someone else to start buying so they can offload their assets and get rid of their debt.

All this Government "help" going on at the moment is about restarting the bubble, which is another way of saying restoring consumer confidence, which is another way of saying let suck some other idiots in to boost up asset prices. The question is will it work, are people so desperate for the bubble to restart that they will believe and thus act, or is there just too much debt?

Before you answer that it is comeuppance time, consider this from February 1991 in "The case for gold in the 1990s" (see my blog of 7 Sep 2008):

The old remedy of inflating out of this predicament by issuing cheaper and cheaper money into the banking system simply will not work this time. The reason is simple – the country is already awash with too many debtors.

Well they got away with it then, maybe they will do it again. But maybe this time people are bit less trusting and a bit more exposed to alternative views via the internet.

Defend the Gold Standard

Nice reply to Michael Sesi's Bloomberg piece "Gold Standard Fans Yearn for Great Depression" by Robert P. Murphy of the Mises Institute:

But that is clearly not what Sesit is arguing in his Bloomberg piece. No, he is arguing that the gold standard is a bad idea because it keeps the central bankers from using all the latest, cutting-edge macro models to fine-tune the economy.

Rather than his proposal, I would far prefer the classical gold standard. It's true that the government can always renege on its pledge to maintain a fixed peg to gold, but at least everybody would know exactly when the government cheated. You would at least avoid absurdities such as the present crisis, in which people are actually praising the Fed for pumping in unprecedented amounts of new money in order to "help."

And while we are on the topic of the Gold Standard, this is a handy link list The History of the Gold Standard: 25 Great Web Sites to Research Its Rise and Fall, although some of the links are pretty simplistic.

1966 50c piece

Excellent demonstration of inflation and precious metals in the latest Global Speculator newsletter:

Back in 1966 each coin [the 1966 50c round coin composed of 80% silver and 20% copper versus the 12 sided 50c copper/nickel coin] would have purchased roughly:

· 250g of bacon rashers.
· A dozen eggs.
· 12 domestic stamps.
· 1 kg of lamb chops (loin)
· 2kg of bread
· 2kg of sugar

Today the 12 sided 50c piece will buy:

· 25g of bacon rashers (10%)
· 1 egg (8%)
· 1 domestic stamp (8%)
· 25g of lamb chops (loin) (2.5%)
· 125 grams of bread (6%)
· 300g of sugar (15%)

The 1966 50c silver round sold on EBAY for conservatively A$7.00 (silver price A$20/21 oz) buys:

· 350g of bacon rashers (150%)
· 18 eggs (150%)
· 12 stamps (100%)
· 350g of lamb chops (loin) (35%)
· 2 kg bread (100%)
· 4 kg of sugar (200%)

Citizens Electoral Council of Australia

Somehow I got on to the CEC's email list recently and have been receiving unsolicited press releases every week. Thought I'd check out their website to see exactly what their policies were. My attention was drawn to their proposal for a new national bank and out of curiosity I did a search on the word GOLD in their draft legislation.

Interestingly, in Section 40(3), they are including the very same affronts to freedom that are in Part IV of the existing Banking Act 1959, namely making it illegal to own/hold gold. They have pretty much kept the wording of the sections I noted in my blog on gold confiscation.

After unsubscribing from their email list, I emailed them at cec@cecaust.com.au and suggested they read the work of Professor Fekete to understand the importance of allowing private ownership of gold. Haven't had any reply as yet.

Gold vs SP500

We had an exclusive tour group of Americans in yesterday and Nigel Moffatt and I gave a short talk on gold. When talking about why you should buy gold, I handed around this chart. Self explanatory really.

Give and take

It is clear that civilization emerges time and again because mankind is a social animal and seeks the benefit of banning together in sort of a tribe of nations. But there is also the downside, and that is that civilization creates leaders and the self-interest of those in power always is pitted against its own people to exercise and extend its own powers. Civilization is destroyed by the inability of all governments no matter the form it may assume, to spend only what it earns. Every state in history has fallen into a Debt Crisis and that has always led ultimately to higher taxes.

Martin Armstrong

You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.

Dr. Adrian Rogers, 1931 - 2005

If the mints are indeed boxed in by the blanks problem, and it appears they are, there will be no easy way to keep those base premiums in check over the long run. It appears that the bullion gold coin shortage has become a chronic problem and something gold owners and accumulators will need to keep an eye on in the months to come.

Michael Kosares: Gold coin shortage likely to become chronic.

I covered similar ground in this post as well as this post which got a response from Jason Hommel. Good to see this issue is now getting a bit more exposure.

Goldonomic: $ 6,000 Gold ?