Silver Versus Gold; Stocks Versus Flows

July 6, 2013

Once again attention focuses on intense demand for real bullion.

With today’s jobs-farce in the U.S. resulting in gold/silver prices being dragged back near recent (insane) lows; once again attention focuses on intense demand for real bullion – and rapidly depleting inventories. With respect to the latter point, a recent reader comment illustrates the need to step back for more of a Big Picture look at this subject.

The issue here is both a “truth” which distinguishes the gold (NYSEARCA:GLD) market from the silver (NYSEARCA:SLV) market, as well as the mythology which the Corporate Media has (gleefully) cultivated around that truth. Most informed investors in the silver market are fully aware that most of the world’s “stockpile” of silver (i.e. the total amount ever mined) has been completely consumed (via industrial usage); while the vast majority of the total, global stockpile of gold remains intact.

Noted silver authority Ted Butler spelled-out the situation in the silver market in unequivocal terms in a previous interview:

In 1959, there were about 9 billion oz. of silver bullion-equivalent in the world (half of that in the U.S.). With a world population of 3 billion, there was a per-capita amount of 3 ounces for each of the world’s citizens. Today, 50 years later, there is a per capita amount of silver of 0.15 of an ounce remaining (1 billion ounces divided by 6.8 billion). That is not a misprint. The per-capita amount of silver bullion in the world has declined by 95% over the past 50 years. [emphasis mine]

Doing a little more math here, the plunge from 9 billion ounces to 1 billion ounces (as of 2009) works out to nearly a 90% decline in global stockpiles of silver. The situation is totally different with gold, although the numbers provided by the “experts” are somewhat contradictory.

GFMS (quasi-official record-keeper for the gold market, and now tool of the Thompson/Reuters media oligopoly) asserts there has been more than 170,000 tonnes mined in total – with almost all of that gold still floating around in global stockpiles.

The United States Geological Survey (USGS) estimates that less than 160,000 tonnes have been mined in total, and that approximately 15% of that amount has “dissipated” over the 5,000 years in which these metals have circulated in human culture.

Both of these numbers still seem like enormous totals given that annual mine production is under 3,000 tonnes per year, and (for the moment?) global gold demand remains below 5,000 tonnes per year. However, this is where media mythology has been stretching the truth. A true perspective can be obtained through a visual representation of the gold market, and by properly defining global “supply”.

Even using the more-exaggerated figures of GFMS; all of the gold ever mined in the world only amounts to a single cube little more than 20 meters across. Try dividing that one block into seven billion pieces and see how much gold there is in the world. Keep in mind that certain greedy Oligarchs and avaricious governments consider much of that block to be “their’s”.

But the global gold-pie gets much, much smaller when people comprehend the crucial difference between “inventories” and “stockpiles” – something deliberately obfuscated by the Corporate Media in general and the Liars keeping records within the sector in particular.

We all have a pretty good grasp of what an inventory is. When you walk into a store, the “inventory” is what is for sale today. At the wholesale level; inventories represent what is available to be shipped to retailers today.

A stockpile is an entirely distinct concept. A “stockpile” (individually and collectively) represents a quantity of a good being held which may (or may not) come onto the market – but only at higher prices. If such quantities of a good were available at the current price, then (by definition) it would already be counted as inventory.

The two important points of note about gold stockpiles are that virtually none of these stockpiles would/will ever come onto the market unless prices rise; and some of these stockpiles will never come onto the market – at any price.

How much of the world’s 150,000 tonnes of gold is contained in religious structures, which represent some of humanities most revered historical/cultural landmarks? None of that gold would ever come onto the market, at any price. How much of the world’s gold has been fashioned into religious artifacts; adorning the millions of temples around the world? The 20-meter cube gets smaller and smaller.

How much of the world’s gold is contained in “family heirlooms” or wedding rings/bands? How much of that gold would ever come onto the market, at any price? And with what (little) remains, how much higher do prices have to go before any significant quantities of those stockpiles come onto the market?

We’re told that 10’s of thousands of tons is secured in central bank vaults. Not only have those Banksters stopped selling their gold; they’re buying it themselves at the fastest rate in history. In short; the “global stockpile” of gold is some small fraction of 150,000 tonnes, which will only (grudgingly) trickle onto the market as the price of gold begins to recover…in a market filled with ravenous buyers at current prices.

Suddenly, in a world where mine-supply is below 3,000 tonnes per year (and shrinking) and demand is surging toward 5,000 tonnes per year; “default” is a very realistic proposition.

The Corporate Media would have us believe that stockpiles are more-or-less the same thing as inventories. Indeed, the numbers used by GFMS and the CPM Group to represent inventories are now bastard-hybrids which combine inventories and (selected) stockpiles. They are fantasy-numbers which have no analytical credibility.

Propaganda claims of “ample inventories” are contradicted by the extremely shrill (and absurd) rhetoric emanating from the talking-heads, and even more extremely contradicted by the actions of the banking cabal.

Day after day we’re subjected to the inane drivel about a “bear market” for precious metals; unequivocally rebutted by current, unprecedented global demand for gold and silver. Meanwhile; media lies about a “bear market” are accompanied by equally rabid rhetoric about a mythical “current account deficit” in India (source of much of this global demand), which is nothing but an accounting sham.

This lie, in turn, has been the pretext for a frantic 6+ month campaign to suppress gold-demand in India, ending with a recent series of draconian, rapid-fire measures which may end up doing little more other than igniting Indian demand for silver.

As we see the supply-dynamics continue to narrow with respect to the dichotomy between gold and silver, now consider this. Silver has always been the metal (i.e. the “money”) of the people – all us Little People. Conversely, historically gold has been the metal (and money) of governments and the very-wealthy.

In our current (oppressive) economic regime where more of that wealth is concentrated in the hands of government and the Ultra Wealthy than at any other time in centuries; competition for the (remainder of the) 20-meter block has never been more fierce. More paper is chasing less gold than at any time in history.

Clearly formal inventory-default is now a distinct possibility in both the gold and silver markets; and at current insane/artificial prices, arguably a certainty. But there is still a distinction between gold and silver in one important respect.

Barring dramatically higher prices; silver-default would seem to be a certainty – and a near-term certainty if India’s silver imports continue on their recent 10,000-tonne per year pace. Conversely, with significant stockpiles of gold still available should prices rise even close to previous highs; a default in the gold market at this time would be a strategic choice (or else simply a colossal blunder).


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