The news that China has been to some degree crowded out this year by Western demand for gold is of minor importance compared to this further evidence that the mighty double-digit growth 15+ year surge in Chinese domestic gold production seems at last to have topped out. This means Chinese appetite for gold will increasingly have to be met from overseas.  – John Brimelow   JB’s Gold Jottings report  LINK

It was reported by Reuters Africa yesterday that Chinese gold production in the first half of 2016 was up slightly from the same period in 2015.  2015 production was down .4% from 2014.

If the amount of China’s domestically produced gold begins to decline, China’s enormous demand for gold will require a lot more gold imported from the rest of the world.  This will make things interesting – given the already enormous supply/demand deficit in deliverable physical gold  – because we know that, based on retail gold coin sales in the  U.S., Canada, England and Australia,  retail demand in the west is picking up quickly.

Let’s examine the phrase, “deliverable physical gold” for a moment.  It’s well understood that the amount of legal claims to deliverable gold written on pieces of paper – Comex futures, LBMA forwards, lease agreements, hypothecation agreements, OTC derivatives, etc – exceed the amount of available deliverable physical gold by an unaccountable amount.

For example, the total paper gold open interest on the Comex exceeds the amount of gold that has been made available for delivery by a multiple of 35.  But we can’t account for the amount of LBMA forwards, lease/hypothecation claims and OTC derivatives gold liabilities. Therefore,  the total physical gold supply deficit is unaccountable.

With gold in a state of scarcity and with the mining stocks historically undervalued in relation to the price of gold and silver, the mining stocks have the potential to make a move that will rival the move made by the internet stocks in from 1998 – 2000.  James Dines is the first to have made this prediction over 16 years ago. The only difference, of course, is that the revaluation in the mining stocks will be based on measurable intrinsic value whereas the move made by the internet stocks was a modern version of the Dutch Tulip bulb bubble.

All this is to suggest that mining stocks appear ready for another big upside move (click on graph to enlarge):

At some point soon, the mining stocks are going to undergo another significant upward revaluation, which will reflect the increasing amount of stress that is going to be exerted on the market for deliverable physical gold. This “stress” will only be relieved by a much higher price for gold and silver.

While I’m not making an official price forecast, I would not be surprised to see $1500 gold and $25 silver by the end of October.

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