Lear Capital: The Spin On Shrinking Gold Demand

Gold demand down!  That was the report being aired.  That was said to be the reason gold prices had dipped.  And then they let it slip.  “There were no big sellers.”  Not too many weeks prior, the report was “China is buying less gold.”  In my opinion, the real story is taking shape.  If the gold supply is dwindling as fast as the likes of Eric Sprott are telling us, the number of large purchases will naturally dwindle along with it.  Hence less gold demand.

Russia just dumped a record amount of treasuries and bought 900,000 ounces of physical gold.  Do you think they bought them one at a time from thousands of small investors?  Of course not!  They bought it from some bank or country who was in financial trouble and needed liquidity.  You can’t buy 900,000 ounces of gold if there is not a 900,000 ounce lot for sale.    

Let’s say a farmer brings his harvest to the farmers market every weekend.  Last weekend he brought 1000 bushels of corn to market and sold all 1000 bushels.  This weekend he brought only 500 bushels and sold all 500.  Each week he sold 100% of what he offered even though sales in the second week were down 50%. 

I think few would dispute that either a country like China or Russia is not going to go on the open market and announce their intent to stock up on gold.  If you are looking for large quantities of gold to buy you wait for the opportunity to come to you.  If 900,000 ounces come on the market they buy it.  If it doesn’t come on the market they wait for the next opportunity to arise.   For someone in gold accumulation mode, it would be counter-productive to go on the market and announce this intention.  It would drive up the price and defeat the objective of accumulating gold at bargain prices. 

This is what the experts watch as the amount of physical gold available for sale and delivery is shrinking.  New production is not keeping up with demand.  That said, stories of shrinking gold demand could just as easily be spun as shrinking gold supply.  And stories of less gold buying could easily be spun as less gold selling.  Which is it?