Gold Bullion: The Bargain of The Century?

This past Friday in Singapore, Juerg Kiener was interviewed, saying the world has nearly no base metal inventory levels (e.g., zinc, aluminum) to meet increasing supply needs. Being in Asia, he likely knows that China has bought up many once more readily available commodity inventory levels.

Juerg drops a bombshell for viewers of Bloomberg Asia. In the six-minute interview, I subtitled it for you. Mentioning how outsized silver futures and options leverage in the hundreds of paper ounces versus one-ounce physical silver helps maintain the illusion that all is calm in the silver market. It's not, and he describes in detail about silver supply-side pressures building at the moment.

According to Kiener, gold bullion at these spot price levels is also the bargain of the Century. Perhaps have a few viewings on why the metals markets are his primary concern.

Kiener is also on record, stating that five-figure gold price stabilization is needed in a new currency realignment to help stabilize the world economy. In this week's SD Bullion Market Update show notes, you can find backlinks to those points.

Silver and gold spot price markets were hammered downwards in this week's trading action.

The spot silver market closed just above $24 per ounce, with gold spot prices finishing just above $1930 per ounce.

The gold-silver ratio has climbed back to 80.

Last Friday, the platinum spot price market also sold off, finishing near $930 per ounce and some current technical support levels.

So we have an excellent weekend to be bullion buying at heavy discounts versus somewhat recent spot price levels.

Thus far in 2022, the US bond market had had its worst performance to begin a year, even worse than in 1980, back when price inflation was as bad as it is in real terms today.

The borrowing costs for 30 yr fixed-rate mortgages in the United States have risen extremely fast since the start of the year to over 5% levels. The fastest 30 yr mortgage rates have climbed since the late 1980s. The last time we had house buying borrowing costs, this high, median, or the median US housing price was more than half priced where home prices are now, back in the early 2010s.

A longer-term perspective on the actual value, especially now living under a secular inflationary regime, currently costs about 187 oz of gold bullion equivalent for a median-priced US home. In 2011, that number dipped below 100 ounces of gold to afford a middle-priced US home. And in 1980, when price inflation was about as high as it is now, the median price of US homes dipped below 80 oz of gold bullion equivalent for most of that year. In today's fiat US dollars, a repeat of that situation would equate to a gold price near $5,000 per troy ounce.

In yet another sign of the changing currency regime times, the nation of Israel announced that it is adding 4 new fiat currencies to its FX holdings in 2022. The recently sharply devaluing fiat Japanese yen, Australian dollar, Canadian dollar, and fiat Chinese yuan renminbi to its basket of FX reserves moving forward. Here, the targeted allocations shrink the amounts of fiat euros, and Federal Reserve notes the Bank of Israel will hold.

This week, the Silver Institute, an industry data tracker, made headlines with its latest 2021 silver market data. Citing a silver market deficit of over 51 million ounces demanded versus supplied last year, a net silver supply loss not seen since 2015, and the silver market's most significant supply loss since 2010.

Not surprisingly, coming off the 2020 lockdowns, silver industrial demand saw increases in every use case. Silver investment demand for physical bullion bars, coins, and rounds came in at a very high figure, with 278 million ounces bought by physical silver investors last year. 

Breaking down where physical silver bullion buying happened was mostly a western world-driven phenomenon as Indian silver investment demand is still waning from where it typically was in the early 2010s.

And given how much record gold bullion coin buying is happening out of Australia or the USA, we are still nowhere near when the gold price gets so exorbitantly expensive that buyers switch their preference to silver, which often comes near silver price peaks.

The Silver Institute's silver market data comes from London-based consultancy Metals Focus. I would like to take a moment to point out one of the most questionable assumptions they make in their 2022 forecast.

During the kickoff of the ongoing Reddit Silver Squeeze movement in 2020, we saw a net inflow of over 330 million ounces equivalent into unsecured silver ETF or ETPs (exchange-traded products, silver funds like SLV, SIVR, and PSLV). 

For its 2022 forecast, Metals Focus makes the paltry estimation of a net 25 million ounces of fund flow equivalent, moving in silver ETF collectively for this entire year.

Just a quick gander at the largest unsecured ETF, underperforming silver bullion per usual, iShares' SLV fund already had over 50 million ounces equivalent inflow thus far in 2022. I and others in our industry find that forecasted figure a bit dubious at the moment.

Finally, to finish this week's update by hammering home the point, Juerg Kiener made in his Bloomberg Asia interview in Singapore today. Here we have the total turnover for major silver exchanges in 2021.

Well over 325 billion oz equivalent futures and options oz equivalents to help discover silver's day-to-day spot price traded in a global market that barely eked out just over 1 billion new physical troy ounces for 2021.

Yet fundamentally speaking on behalf of the world silver market, current trends say derivative leverage cannot forever mask an acute physical shortage when physical silver demand overrides limited available silver bullion supplies. 

It will require an acutely higher silver spot price in the future to get this market to a sustainable equilibrium where demand and supply find fair value. Still priced below half its record price, silver seems perhaps the most prudent long-term buy and hold in the precious metals and commodity complex at these current spot price levels.

That is all for this week's SD Bullion Market Update (subscribe here for regular updates).

As always to you out there, take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...