Gold Fundamentals v. Gold Manipulation: Who Wins?

Today I tackle the age old question of gold fundamentals v. gold manipulation. I certainly have encountered a fair share of people that remain in the gold fundamentals camp, and if you spoke to me fifteen years ago, you would have found me firmly entrenched in that camp. But you learn a lot in fifteen years and since then, my opinion has shifted to the opposite camp, at least for the immediate to short term outlook.

For years, when I started my journey in the analysis business twenty years ago, I would continually emphasize holding for the long game due to stellar fundamentals that existed regarding global supply and demand determinants of physical gold. Only years later into my analytical journey did I learn that the manipulation behavior of the banking cartel supersedes the majority, not all, but the majority of fundamentals in the behavior of gold prices.

For example, the pro-USD cartel that continually bashes the PBOC for manipulating the strength/weakness of the Yuan/RMB (which of course, they do), never acknowledges its much more powerful leverage in the game due to the USD still retaining a great deal of hegemony in global finance, of manipulating the USD for more than a century. So this is an example of the pot (the much larger influencer) calling the kettle (the much smaller, though growing, influencer) black for engaging in the exact same manipulation as itself, while never acknowledging its much larger role in the manipulation game. And this same anti-gold cartel also understands the value of holding physical over paper, and for this reason of understanding this, will hodl (to co-opt a term embraced by the crypto community) physical while shorting the gold and silver mining stocks (the main reason the PM mining stocks suffered an eighteen-month decline from 2020 to 2021).

If gold/silver/platinum assets only followed fundamentals, meaning the supply/demand determinants of the physical world, then we should have never experienced the 4-1/2 year bear that occurred between mid-2011 and the end of 2015 that is clearly visible in the below chart. By the way, for those that were among my very first patrons on the skwealthacademy patreon platform, you will recognize the green circled area, when gold futures were trading at $1,180 when I stated gold assets were a screaming buy here and that gold would never retreat again to $1,000 per ounce even though the prevailing propaganda back then was that gold was going to crash to $500 to $600 an ounce and that gold was dead (sound familiar to the same propaganda being forwarded in 2022 anyone?).  And furthermore, were gold prices simply driven by fundamentals, gold would not have remained in a consolidation pattern for the last eighteen months either. So I’ve clearly shown a period of 36-months during which prices either completely diverged from bullish fundamentals (mid-2011 to the end of 2015) or during which prices vacillated (mid-2020 to present day) during which prices clearly should have been climbing higher from a fundamental perspective.

multi-year gold bear developed despite strong gold fundamentals during this period

To address those that state that gold prices have been following the fundamentals for the last three years, even though the supply/demand data most often quoted of the World Gold Council (WGC) is pure propaganda, of which I’ll prove in this article, for the sake of appeasing the fundamentals drive prices herd, let’s review the supply/demand data supplied by the WGC for the past three full years (2019-2021, to see the chart I’ve compiled in this data in which I’ve subtracted non-physical data from the WGC compiled data, join the skwealthacademy platform at the benefactor level).

Even though the annual supply/demand gold figures reported by the WGC are likely highly propagandized and false (as I will make the case for in just a second), the “gold price follows fundamentals” arguments fails per the WGC data. From 2019 to 2020, global physical supply fell by 3.21%, global demand fell by a whopping 29.06% yoy, and using spot prices as a proxy for physical (because I can’t recall the exact prices of one troy ounce of gold at the end of 2019 and 2020), gold prices soared by 27.07%. Though some may argue that gold prices soared because of covid worries in 2020, even if this were true, because covid propaganda and not scientific truth dominated the mainstream media in covid reporting in 2020, this would still be a cause of manipulation, and not fundamentals, driving prices. Furthermore, were we to credit covid propaganda for the massive increase in gold prices in 2020, then we should have witnessed a higher percentage rise in 2021, because covid lockdowns became far more draconian in nature in 2021 (trust me, as I was subject to them) and covid propaganda and fear mongering intensified in 2021. Yet, prices barely rose in 2021.

Finally, if we look at the data released by the SGE (Shanghai Gold Exchange) in 2021 for their wholesale market, clearly either the WGC or the SGE is lying about China gold demand in 2021. Per data I extracted from global gold demand in 2021 from the WGC website, they reported mainland China retail gold demand at a lowly 960.1 metric tonnes for the entire year. However, the SGE reported wholesale demand in mainland China, per the above link, at a whopping 81.82% higher, at 1,745.7 metric tonnes. Of course, all the wholesale gold demand in mainland China is not sold into the retail consumer market, but it is highly unlikely for the wholesale gold demand of mainland China to exceed the retail consumer demand by near 82%, as wholesale demand, during the course of the year would be adjusted accordingly to monthly retail consumer demand. Unless wholesalers expected an explosion in gold prices higher this year or next, there would be no reason for wholesale purchases to exceed retail purchases by such a high margin (unless there is a facet of the wholesale gold market in mainland China I do not understand at all, and if so, I would welcome any mainland Chinese resident providing an explanation in the comments below as to why wholesale and retail gold demand would differ so tremendously).

Thus, in this case, without assuming the WGC is providing propaganda numbers and the SGE is not, there has been ample historical reason to assume that if anything, SGE gold demand data would be underreported. In the past, using publicly reported data of gold imports to Hong Kong from Switzerland as well as data about China gold imports, and in attempting to reconcile this data, it has been possible to determine that most gold that is imported into Hong Kong ends up in mainland China. From that point, due to the opacity of much gold reporting, it is more difficult to ascertain exactly where the imported Hong Kong gold ends up in mainland China, regarding the percentages that may be allocated to national reserves, wholesale consumption and retail consumption, simply because it is highly unlikely that the figures of annual gold production within the borders of China that stay within national borders are accurate (likely in my opinion to be highly underreported). Thus, given the opacity of the combined internal production of gold as well as total importation of gold from Switzerland and other unreported sources, it is impossible to tally the different allocations of gold consumption every year within China as the Chinese government likely considers these figures to be of national security.

To read my conclusion, in which I connect all the dots of the points I make in this article, and a conclusion greater in length than the above article, subscribe to the Benefactor level of the skwealthacademy patreon platform.

J. Kim

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