Huge Trend Changes Point To Something Big In The Gold Market

Very few precious metals investors realize how recent trend changes will greatly impact the gold market going forward.  The reason many investors fail to grasp the huge change in the gold market is that they look at data or information on an individual basis.  To really understand what is going on, we must look at how all segments of the market compare to each other… a BIRD’S EYE VIEW.

Let’s start off with one segment of the gold market that has changed significantly in the past 15 years.  The Global Gold Hedge Book hit a peak of nearly 3,100 metric tons (mt) in 1999:

(chart courtesy of the World Gold Council)

Here we can see that after the Global Gold Hedge Book peaked in 1999, it fell to a low at a little more than 100 mt in 2013.  Not only was this a significant change in the hedging strategy of the gold mining industry, it also was impacted by the price change from an average price of $279 in 1999 to $1,411 in 2013.

So, as the price of gold jumped five times from 1999 to 2013, the Global Gold Hedge Book fell 96%.  Even though it increased a bit in the first quarter of 2016 to the present 253 metric tons, it’s still a fraction of the massive hedge book the gold industry held in 1999.

Now, if we add another segment of the gold market, we will see another large trend change.  Global Gold Bar & Coin demand increased significantly since 2000.  In 2000, total Global Gold Bar & Coin demand was 166 mt.  However, this hit a record high of 1,705 mt in 2013:

If we were to super-impose the Global Gold Hedge Book chart with the Gold Bar & Coin chart, we would see an interesting trend.  As the gold industry’s hedge book fell to a low in 2013, Global Bar & Coin demand hit a peak.  Furthermore, if we consider the net change in Central Bank Gold purchases, it’s even more interesting:

When the gold industry held a very large gold hedge book, Western Central Banks were dumping gold on the market HAND-over-FIST.  I imagine this was a two-tiered approach in controlling the gold price.  We can see that in 2003, Central Banks dumped 620 mt of gold into the market and another whopping 663 mt in 2005.  However, this all turned around in 2010, when (Eastern) Central Banks became net buyers of gold at 79 mt.