The Tiny Size of the Gold Market

One of the reasons that big money managers, and the world's wealthiest
people, don't understand gold, and silver, is that human beings, even
very, very smart people, just do not understand very large numbers,
nor relative size.

Money in U.S. banks, M3, is growing at a rate of about 12% per year,
or more.  So, in the last 12 months, it grew by about $1.3 trillion
dollars, which is $1,300 billion dollars.

The world gold market grew this year at a rate of about 1.5%, as the
world's mines produced about 2500 tonnes, and it has been estimated
that there is about 155,000 tonnes of gold in the world.

People also don't understand weights and measures.  Big money managers
must learn how many ounces of gold are in a tonne.  And it's troy
ounces, not avoirdupois ounces, and gold is measured on the world
stage in metric tonnes, spelled tonnes, not short tons.

1 metric tonne = 32,150.7466 troy ounces.

So, how much is 2500 tonnes of annual world gold production worth?
Well, times 32,151 ounces, its 80 million ounces.

And how much is 80 million ounces of gold worth, at $675/oz.?
It's worth only $54 billion dollars.

See, big money managers simply don't know the numbers!  They also
probably fail to account for the value of that new gold.  Comparing
dollar for dollar, it compares like this:

$1300 billion of new money printed.
$54 billion dollars worth of new gold mined, at $675/oz.

So, the U.S. is actually creating new paper money at a rate 24 times
as much as new gold.  (1300 / 54 = 24!)

And of course, this is hardly a fair comparison.  I'm comparing U.S.
dollars to world gold production.   We should compare total world
paper money creation rates, to world gold mining rates.  But that's a
lot of work, and I don't know if I can source it all out.  My well
researched guess is that the U.S. dollar is only about 1/4 of the
world total increase of paper money.   (It is widely admitted that
other nations are now printing up money even faster than the U.S.!)
So, let's multiply by a factor of 4.

$1,300 x 4 / 54 = 96!

Thus, the world is creating new money at about a rate nearly 100 times
faster than the world's value of new gold.

So, again, how much is $1300 billion of new U.S. money created this
year?

Well, that's about how many dollars China now has.  And China has
continued to announce that they should buy gold to diversify.  People
just don't understand what this means for gold prices, because they
don't understand large numbers, nor do they understand the numbers in
the gold world.

A "wise allocation" would be 50-100% at this stage.  But a more
realistic, "foolish" allocation would be at least 5-10%.  But what
happens if China tries to spend that $65 to $130 billion on gold, when
annual world gold production, 2500 tonnes, at $675/oz., is worth only
$80 billion?

It's anyone's guess, so go ahead and guess.  I'll wait.  But that's
just China.

With gold now rising since the bottom in 1999 or 2001, people are now
beginning to look at gold, and paper money, they are beginning to
discover the relative size of these markets, or read articles like
this one.

So, investors, the world over, may have about $40 trillion worth of
investments to allocate and spend on gold.  What if 5% of that went
into gold?  That's $2 trillion dollars, or $2,000 billion.

What will happen when that much money is going to move into gold, when
the world's annual gold production is a mere $54 billion?

How much gold is traded in a year?  Most of the gold in the world is
not traded, it is held, for a very, very long time, for times just
such as now, when the world wakes up from the delusion of paper
money.

Some of the best guesses that I've read are that only about 5,000
tonnes of gold trades each year, which is about twice what is mined
annually.  Some gold is recycled.  And central banks "add" to the
supply through selling.

There is a big issue over how much gold the central banks regularly
sell, and have sold.  With good reason, because, officially, the
world's central banks hold 33,000 tonnes of gold.  If half of that is
leased out, then buying back that much gold on the world market is
also going to cause gold prices to rise substantially.

Let me back up a minute, to help explain that.  In 1999, European
banks decided to limit how much gold they would sell per year to 500
tonnes, and no more than that, so as to avoid hurting the gold price.
(They were also leasing gold, which also adds even more to supply.)
Good timing.  They picked the exact bottom of the gold market, so they
were right that their prior, uncoordinated sales, and leases, were
hurting gold prices.  In fact, it spooked the market so badly, to
limit gold sales, that gold prices rocketed up from about $260 to $330/
oz in less than a week, and that explains the vertical spike you see
on gold price charts going back to late 1999.

It was exciting, if you were paying attention.

Now, this was not "new gold sales".  Nor was it "less gold sales".  It
was merely an announcement of "not more than 500 tonnes/year" of gold
sales.  But really, it was a confirmation of major gold sales.

Today, we have many confirmations of major gold buying, on the
horizon.  China will be buying someone's gold.  CalPERS manages over
$234 billion for California employees, and is bullish on commodities
now, including gold.

I read that "Barclays Capital did a survey of their institutional
clients and 70% of them said they would have 5% of their assets in
gold in three years time."

I don't know what these money managers are thinking.  If they knew
about the relative size of the gold market, the price would be $2000/
oz. by tomorrow morning.  As it is, the gold price is likely to hit
$2000/oz. within 3 years, and most will still miss the big easy gains.

Gold crosses Rs 13,000 level on firm global cues

NEW DELHI: Gold prices touched the crucial Rs 13,000 per 10 gram level in the bullion market on Thursday on brisk buying by stockists and jewellery fabricators amid firm global trend.

Gold prices shot up by Rs 340 to Rs 13,200 per 10 gram on reports that the metal on global front surged after the dollar weakened against euro and with crude oil setting a new record of around 135 dollar a barrel, marketmen said.

They said the Indian bullion markets were impacted as rupee weakened against dollar here, while dollar weakened against the euro in overseas markets.

The gold in domestic market normally move in tandem with the global bullion markets and closely-related with the forex.

Standard gold and ornaments spurted by Rs 340 each at Rs 13,200 and Rs 13,050 per 10 gram respectively. Sovereign rose by Rs 50 at Rs 10,100 per piece of eight gram.

Silver followed suit and recorded a handsome gain of Rs 220 at Rs 24,900 per kg, while silver weekly-based delivery was distinctly higher by Rs 960 at Rs 25,350 per kg on speculators enlarging their position expecting more rise in the coming days.

Silver ready jumped up by Rs 220 at Rs 24,900 per kg while weekly-based delivery moved up by Rs 960 at Rs 25,350 per kg.

Silver coins gained Rs 200 at Rs 27,200 for buying and Rs 27,300 for selling of 100 pieces.

Storms destroy mango crop in North India

REPEATED storms in northern India since May 14 have destroyed almost 25% of the region's mango crop and Uttar Pradesh is the worst affected, according to a government estimate. "The storms have substantially damaged the mango crop. The loss would not be less than 25%. The details are being sought from different states," an agriculture ministry official said.
    The first set of squalls hit Uttar Pradesh, Delhi, Rajasthan, Punjab, Madhya Pradesh and Haryana on May 14. There were more storms on Friday, affecting Uttar Pradesh the most. North India faced storms again over the weekend. While city dwellers revelled in the unexpected relief from midsummer heat, "it is going to affect the export of mangoes this year," said the official requesting anonymity. "If the weather continues to be inclement, we expect more damage to the country's most important fruit crop."
    The thunderstorms have caused havoc to the crop in Uttar Pradesh, which account for 34% of India's mango production. In a normal year, the state produces around 5.83 tonnes of mango per hectare.

Gold gains 1 percent as dollar slips from highs

• Reuters
• , Thursday May 8 2008

(Updates with quotes, prices)

By Atul Prakash

LONDON, May 8 (Reuters) - Gold rose more than 1 percent on Thursday as the dollar changed course to fall from two-month highs against the euro after the European Central Bank left interest rates unchanged at 4 percent.

ECB President Jean-Claude Trichet said the central bank must ensure inflation remains temporary even as risks to euro zone growth prevail..

Gold rose as high as $879.85 an ounce and was quoted at $876.35/877.35 at 1415 GMT, against $870.85/872.05 late in New York on Wednesday and last week's four-month low of $845.

"The metal's short-term direction is still coming from the dollar. Given that oil prices are trading near record highs, inflation concerns are still very much in the forefront of the market," said Suki Cooper, metals analyst at Barclays Capital.

"We are likely to see range-bound trade in the near term, with a bias on the upside. We need some catalyst, such as a rapid weakening of the dollar or movements in equity markets, to drive prices substantially higher," she said.

A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

Oil hit a record high near $124 a barrel before easing.

Gold has lost about 15 percent in value since spiking to a lifetime high of $1,030.80 on March 17, mainly driven by profit taking and declines in other commodities.

"Crude oil is a pillar of support for precious metals. Amid the low trading volumes, gold and silver prices have been sticky, resisting major downward pressures so far this week," said Walter De Wet, analyst at Standard Bank.

DOWNSIDE RISK

But some analysts said the metal would struggle to retain gains and might slip further in coming weeks.

"With our fundamental and technical forex strategists negative euro/dollar and our oil strategist unenthusiastic about the prospects for further gains in crude oil, we continue to favour the downside in gold, targeting $850 in one month and $800 in three months," UBS Investment Bank said in a report.

Gold futures also rose, with the June delivery contract on the COMEX division of the New York Mercantile Exchange gaining $6.60 an ounce to $877.80.

"It's hard to see a clear trend at the moment on gold. Probably we are going to bounce around in the near term," said Michael Widmer, metals analyst at Lehman Brothers.

In other markets, spot platinum rose to a high of $2,000 an ounce before easing to $1,989/2,009, versus $1,949.50/1,969.50 late on Wednesday.

In industry news, Lonmin Plc, the world's third biggest producer, posted a 63 percent jump in first-half profit on strong prices, but withdrew a long-term output target due to South African power problems.

The company, listed in London and with operations in South Africa, had been aiming to boost output to 1.2 million ounces by 2012 by building new mines, but said on Thursday this was now in doubt, Chief Executive Brad Mills said.

Silver rose 1.2 percent to $16.80/16.86 an ounce from $16.60/16.66, while palladium rose to $428/436 an ounce from $420.50/428.50 late on Wednesday.