Gold Supply and Demand Analysis

What I like about Eric Sprott's letter to the World Gold Council are his numbers about the supply and demand in gold.

In that letter he said that demand far exceeds supply at this moment. See second column in table below. 

Demand is 5184 tonnes and supply is 4403 tonnes. If mine supply increases by 3% it would mean nothing compared to the increased demand from China.

Eric explains why demand is far more important than supply

But Eric's numbers haven't accounted for the increased demand from China and the decreased ETF outflows nowadays. If we take the current numbers I believe the Chinese gold demand could be in the 1560 tonnes and the ETF outflows could have halved to 450 tonnes based on the flattening slope in the GLD ETF.

That would give supply of 3936 tonnes and demand of 5670 tonnes. That's a deficit of 1734 tonnes, which means the gold price should go up.

On the supply side we need to watch what the mines produce, because that's a big part of the supply. ETF outflows are just a small part and they are declining. Gold recycling should be subdued due to low gold prices.

Gold Supply

On the demand side it is very important to watch China, India and Hong Kong as they control the whole demand picture. What central banks do are essentially meaningless compared to China and India.

Gold Demand