What’s Happening to Gold Supply This Year?

Tuesday, February 9, 2016

gold supply

Last week, you saw three signs of increased gold demand as International banks made big moves to secure and repatriate their stores. At that point, gold was up 8% since New Year’s Day 2016, with CNN dubbing gold the “most beloved asset” of 2016 and Time dubbing it a “strong start” in an otherwise lagging economic horizon.

But gold can’t be riding high merely due to demand, can it?

That was a trick question. In the world of supply and demand, there are no coincidences. Supply and demand share a symbiotic relationship—and it’s no different when it comes to the supply of gold.

A Drop in COMEX Stockpiles

One of the most obvious areas of a change in gold supply came from COMEX, as reported by ValueWalk.com. Two weeks ago, the stockpiles of registered gold inventories dropped some 73% in a single day—an eye-opening number if there ever was one. Coupled with last week’s three signs of increased gold demand, it’s no wonder gold’s seen the strong start it did this year.

In case you’re wondering, COMEX is defined by Investopedia as the primary market for trading gold, silver, and other precious metals. COMEX merged with the New York Mercantile Exchange in 1994 and has been managing the metals trading division ever since. In that context, a drop in gold inventories as large as we saw in one day has some real impact.

Gold Repatriation

Don’t forget that some of the moves explained last week also show that the supply—and, more specifically, the location—of physical gold has taken some interesting turns of late. Bundesbank, the massive European bank, brought vast amounts of gold back to Germany. As if they needed it. Germany is already a country that already has some of the world’s largest gold reserves in waiting.

This is not new. A large amount of gold was repatriated to Germany in 2014, as well. In recent years, Austria asked for several billion dollars’ worth of gold held in the Bank of England, aiming to keep as much as 50% of their gold holdings locally. And don’t forget the Netherlands and Belgium, which have either repatriated or declared some intent to repatriate gold over the past few years.

Gold repatriation doesn’t change the physical amount of gold in the world, but it does change how much gold is held at banks overseas and across borders. If more and more countries aim to repatriate vast amounts of their gold stores, you can expect that the price of gold might continue to climb.

If Trends Continue…

The phrase “if trends continue…” is a sketchy one, as there are lots of variables in the global economic system that can affect the price of gold. But the writing is on the wall in both supply and demand of gold, as well as the way that large international banks are looking to hold more of their gold nearby: people want gold. In an uncertain stock market climate, gold is one of the few havens that seems to be performing up on the year.

Supply and demand are symbiotic, but both appear to be pointing the way for gold in 2016. 

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.