Gold Shortages at World's Largest Gold Market
1,2,3. First Shanghai Gold Arbitrage. Second, no Gold in Bank of England's Vaults. Now the Shuibei gold market is "out of stock."
1,2,3. First Shanghai Gold Arbitrage. Second, no Gold in Bank of England's Vaults. Now the Shuibei gold market is "out of stock."
So it goes like this…
Once is happenstance, twice a pattern and thrice A BIG GOLD SHORTAGE FOLKS.
Jon Little of Silver Academy states, “You will be able to get your hands on Gold, but not at today’s prices”
Recent months revealed a perfect storm in global gold markets. China capitalized on the Shanghai-London gold price spread, accelerating imports that drained LBMA inventories. This event was just followed with the Bank of England's unprecedented 4-8 week delivery delays effectively defaulting on spot contracts. Now, shortages grip Shuibei Market ,the world's largest gold distribution hub, as holiday demand collides with strained supply chains.
The recent headlines coming out of China have sent shockwaves through the global gold market. Shuibei Market, renowned as the world's largest gold product distribution center, is facing an unprecedented crisis. With over 200 gold stores and 8,000 gold products, this market has long been the beating heart of the global gold trade. However, since December 20, 2024, a severe shortage of gold material supply has gripped the market, and the situation has only worsened with time.
This supply disruption at Shuibei Market is particularly concerning given China's significant gold reserves. Major deposits are scattered across provinces like Shandong, Henan, Jiangxi, Fujian, and Inner Mongolia. Despite these resources, the current crisis suggests a critical imbalance between supply and demand that even China's substantial reserves cannot easily resolve.
Several factors may be contributing to this unexpected shortage. A surge in demand for gold, often seen as a safe-haven asset during times of economic uncertainty, could be outpacing production capacity. This increased appetite for gold might stem from both retail consumers and industrial sectors, such as electronics and jewelry manufacturing. Additionally, supply chain constraints could be hampering the flow of gold to Shuibei Market. Refining and distribution bottlenecks, possibly exacerbated by geopolitical tensions or export restrictions, might be limiting access to both domestic and international gold supplies.
Environmental and policy pressures could also be playing a role in this crisis. Stricter mining regulations and a push towards more sustainable practices are slowing down gold production. China's ongoing efforts to reduce reliance on coal-powered processes, including those used in gold refining, could be impacting the industry's output. Furthermore, the country's shift towards renewable energy infrastructure might be diverting resources away from gold mining towards other minerals deemed critical for this transition.
The Pickaxe has written extensively about the difficulty in producing even an ounce of gold beginning with exploration, jurisdiction challenges, ore grade declines, the war on mining, refining challenges and the astounding (off the scale) 300,000 kilowatts per megajoule (embodied energy) of gold.
The amount of gold above ground has remained constant throughout human history (usually in parallel with human population close to 1 ounce per 1 human) Today we are looking at that trend going in an inverse and new direction where above ground inventories are about 6.8 billion ounces while population is marching towards 9 billion.
The good news is that this doesn’t impact gold’s incredible stock-to-flow ratio. New inventories coming online don’t negatively impact above ground inventories. Historically the number is around 1% meaning we can expect about 68 million ounces of Gold to be mined in 2025.
The economic implications of this gold shortage are far-reaching. Price volatility is a natural consequence, affecting both consumers and industries that rely on gold as a raw material. If the shortage persists, it could potentially undermine Shuibei's status as a reliable distribution hub, prompting buyers to seek alternative sources. This situation may necessitate government intervention, possibly in the form of releasing state gold reserves, streamlining import processes, or providing subsidies to boost domestic production.
Interestingly, the crisis also highlights regional disparities within China. While northern provinces like Shandong and Inner Mongolia host major gold reserves, the logistics of transporting materials to southern hubs like Shuibei in Guangdong province may be exaggerating the shortage.
Looking ahead, this crisis underscores vulnerabilities in China's precious metals supply chain. Long-term solutions may require a multi-faceted approach, including diversifying mining investments, enhancing recycling programs, and implementing economic policies to stabilize domestic demand. As the situation unfolds, close monitoring of central bank gold reserves and international market trends will be crucial in forecasting the timeline for recovery and the potential ripple effects on the global gold market.
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