The Coming Big Change in Gold Investing

Up until the past 40+ years, gold has been used as money by the majority of advanced societies.  After Nixon dropped the convertibility of the dollar for gold in August of 1971, gold began trading in the futures market at the NYMEX in 1975.  Since then, the price of gold has been valued relative to its fabrication and investment supply and demand forces.

Philip Klapwijk, former chairman of GFMS gave a presentation titled “Is the Gold Bull Market Over?” at the LBMA/LPPM Precious Metal Conference in October.

Klapwijk is implying that even though the gold surplus is forecasted to decline in 2013 compared to the past several years, it is still very large historically.   GFMS figures the surplus by subtracting fabrication (minus coins) from the total of mine supply and gold scrap.

As you can see from the chart, the supposed gold surplus was much smaller during the 2003-2005 time period.  At this point in time, gold traded from an average of $363 in 2003 to $445 in 2005.

Interestingly, as the gold surplus increased, so did the price of gold.  From 2008 the gold surplus increased from approximately 1,000 tonnes to average around 2,000 tonnes between 2009-2012.

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