Gold Investing Fundamentals Explained

Updated on

Here I will discuss physical gold bullion reality as well as current gold supply and gold demand factors today. Let’s begin with the gold’s supply chain.

Get Our Activist Investing Case Study!

Get The Full Activist Investing Study In PDF

Check out our H2 hedge fund letters here.

Gold Bullion Fundamentals By SD Bullion

Here I will discuss physical gold reality as well as current gold supply and gold demand factors today. Let's begin with the gold’s supply chain.

Not just from the ground, and no gold is not a mere entry into a bookkeeping ledger or a digital liability. Physical gold is born from the most violent phenomenon we human beings have ever witnessed… exploding stars.

Scientifically explained planets including our own here on earth form from significant collisions between asteroids and even bigger bodies called proto-planets. Sometimes the colliding bodies are ground to dust, and sometimes they stick together to form more massive mature planets ultimately.

Here on earth in the 21st century, we're still digging for gold. We’ve been doing this for about 5,000 years. The effort required to produce beautiful gold has endured for millennia. After the gold ore is dug from the ground, it typically gets securely moved to various gold refineries throughout the world. This video’s footage is from the Republic metals corporation which is located in Miami, Florida (USA).

The US Mint produces the world's most famous one-ounce American Eagle gold bullion coin. Here you can see their auto tube machine loading 22 karat gold bullion coins into protective US Mint tubes and ultimately into a sealed US Mint case. Each one of the red US Mint ‘monster boxes’ weighs 40 pounds with 500 ounces of gold contained in each.

Here our Royal Canadian Mint gold kilo bars being sorted and processed into inventory each of these gold bars contains a guaranteed 32.15 troy ounce weight comprised of .9999 fine gold.

Gold bullion dealers like us here at SD Bullion, we buy and sell the physical precious metal products that gold refineries, private gold mints, and government gold mint’s create.

Shipping physical gold bullion products in the mail are more common than you might think. Products we mail are discreetly and tightly packaged. They are fully insured with tracking information. An adult signature is required on all large orders. Aside from home delivery, as well many fully insured non-bank secured logistics firms provide safe, secure ways to hold gold bullion outside of the financial industry.

Since the industrial revolution began in the early 20th Century, gold production and annual supplies increased thanks in large part to combustible engines and technology although the gold market remains somewhat opaque regarding who has precisely what amounts. Experts and geologists estimate the all-time above-ground gold supply level stands at about 187,200 tons of gold in the world. That's about 6 billion troy ounces.

Above ground, gold supplies grow at roughly 1.5 percent per year which coincidentally is about the same percentage annual growth for the world's population of human beings. The annual gold supply is now hovering at about 4,000 tons a year yet these yearly supply numbers can be misleading as only about 70% of annual gold supplies are coming fresh from gold miners extractions. The remaining 30% of gold's yearly amount comes from recycled gold scraps.

Unlike platinum or palladium gold mine occurs in many nations throughout the world today the largest gold mining nation is China producing about 15% of the world's annual gold mine supply of that China consumes all of it not merely content with mining within her national borders for gold Chinese mining interests in Africa and Beyond continued to spread this is all occurring as the output from the world's gold mines are projected to top out and begin to climb into the 2020s many have been professing about peak gold for years, yet the following words of a longtime gold mining industry executive are worthy of consideration.

Pierre Lassonde, the chairman of Franco Nevada, said in October 2017 the following:

“Production of gold is declining and this is going to put an enormous amount of pressure on prices down the road. If you look back to the 1970s, 1980s, and 1990s, in every one of those decades the industry found at least 150 plus million ounce gold deposit, at least ten 30 plus million ounces deposits, and countless five to ten million ounce deposits. But if you look at the last 15 years we found no 50 million ounce deposit, no 30 million ounce deposits, and only very few 15 million ounce deposits. So where are those great big deposits we found in the past how are they going to be replaced?

We don't know. We do not have those ore bodies in sight. What the gold mining industry has not done anywhere near enough is to put money back into exploration. They've not put anywhere near enough money into research and development particularly for new technologies with respect to the exploration and processing. The way our industry works is it takes around seven years for a new mine to ramp up and then come to production so it doesn't really matter what the gold price will do in the next few years.

Production is coming off and that means the upward pressure on the gold price could be very intense.”

About half or 50% of all the world's above-ground physical gold is in the same form we found it dating back to more than 6,000 years ago. In gold jewelry and adornment. Pure gold non-tarnishing allure is universal and endures through time and a myriad of cultures past and present.

Archaeologists have found ancient gold grave sites in Bulgaria to ancient Chinese gold artifacts used millennia before the birth of Jesus Christ. Today almost half the world's population resides in India and China alone. They also account for over half of the world's physical gold demand in total. Combined there are estimates that these two nations now hold over 1/5th of the world's entire physical gold supply.

If you know historical gold mining flow history, neither nation has long been a sizeable gold-mining powerhouse like South Africa for example. Many of the current gold buying forces at work in East our cultural and economically driven. Also for the Chinese authorities notably, much of this 21st Century gold buying likely also has a future monetary aspect.

For other Western citizens and us to understand the current 21st Century gold jewelry demand segment you must shed local currency conditioning and perhaps even some of our cultural memes to better understand what gold represents to other cultures. In the USA, for example, gold jewelry is typically sold at exorbitant price premiums over its melt value. Often the gold jewelry being sold is less pure than the gold jewelry of the east.

Both 14 karat and 18 karat, or 58% to 75% gold jewelry purity, is common in the West.

But 22 carat and 24 carats or 91% to 999% gold jewelry purity are standard in the East.

We westerners often pay double or more the melt value of the gold in the gold jewelry that we buy. Easterners typically spend about 10% to 15% above the melt value. Modern-day Eastern gold jewelry designs are often more intricate and artistic than our own. Many easterners consider gold jewelry as a long-term savings plan.

In China, for example, when the gold spot price fell sharply in 2013, many middle and upper-class Chinese housewives swarmed both Hong Kong and Shanghai gold districts efficiently looking to acquire their gold savings on the price dip.

Much of the same occurs in India. This Bloomberg 360 footage was taken at a typical gold shop in India. For both countries, (China and India) gold gifts are common at weddings. For Indians, a gold dowry is often key to the start of a marriage. Notice as we back out into the street, the gold jewelry owner has a direct competitor right next door to his shop.

The next largest sector of 21st-century gold demand is physical gold bullion buying for long-term savings and investment. This segment makes up about 40% of annual physical gold demand. The most significant buyers in the investment-grade gold bullion segment are governments and their central bank partners. Between all the various government and central bank vaults in the world, there are over 1 billion ounces of fine gold stored.

The reason for this is simple. Gold is money; all other non-precious metal currency proxies fade away in time.

Today's transparent gold exchange-traded inventories amount to about 90 million ounces of gold. That may sound like a lot. And yes some news headlines are made from ETF capital flows into GLD or perhaps even withdrawals from the COMEX (commodity exchange) fractional-reserve gold warehouses. But keep this in perspective.

All this gold represented in this chart here (90 million ounces), amounts to 1.5% of the world's physical gold supply. The physical gold buyers we just witnessed in the eastern world, the ones who make up over ½ the world's demand… this chart means very little to them. What drives their gold buying culture is the gold price in their local currency.

For individuals, we suggest buying and owning your physical gold bullion outright.

Either own it first hand and possibly as well in your direct non-bank depository account where you have authority and access to your gold bullion directly. Getting middlemen away from your gold limits counterparty risks. Owning gold bullion outright also gives investors the advantage of product and price premiums which can occur during financial crises. For example, one ounce American Gold Eagle coins were selling for over USD 1000 apiece while gold’s spot price was near USD 800 an ounce in the fall of 2008.

Gold's final demand segment driver comes through a mix of cutting-edge aerospace medicinal, dentistry, and industrial applications. This all currently accounts for a bit less than 10% of annual physical gold demand. By its natural characteristics, gold is resilient to corrosion, virtually impossible to destroy, while also offering excellent malleability, conductivity, and biocompatibility. Pure gold is non-toxic to human beings. Nanogold particles also have increasingly promising applications in the fight against illness and cancer.

A single troy ounce of gold can be drawn into wire so fine that it could stretch up to 50 miles in length. Gold is so soft it can be hammered into leaf sheets so thin and inexpensive that gold can be used as decorative wallpaper or eaten in extravagant food dishes.

As modern science learns more about the particular characteristics of gold, we can expect more cutting-edge gold applications to come about as the year's progress.

This concludes our fundamental gold video for SD billion’s free 21st Century Gold Rush guide if you want to learn more about current gold price discovery mechanics and how the gold price is derived, visit us at where you can find more information in the gold fundamentals section.

Goodbye for now and thanks for watching our Gold Investing video (and or possibly reading this video transcript).

About the Author

James Anderson has worked and invested in the physical precious metals industry for over a decade. Here he is in his own words...

I am personally not a 'gold bug'; such childish condescensions should be set aside.

I do not believe that precious physical metals are the 'one and only' asset class one should own. Yet there is a strong and growing case for having some of our wealth allocated in physical bullion now and ahead.

I intend to give you useful information based on my real-world physical bullion market experience: researching, buying, selling, shipping, storing, making painful, costly mistakes, and more.

Having attained and more than doubled the supposed expert level +10,000 hours required, I think I have some valuable insights to share with you on the matter. It is an honor to do so.

I sincerely want all mankind to flourish and prosper, and that includes you. We must be sober and agnostic with our situation. There are current, growing, and imminent issues we often delude ourselves to ignore regardless of which nation-state we currently call home.

Many of the decisions I have personally made using the information I will contribute to ValueWalk have paid dividends in my peace of mind, while simultaneously establishing proven wealth protection and privacy in foundational financial matters.

I am confident if you study and consider the information I have and will (God willing) continue to produce, your possible intelligent actions to follow will prove warranted and sound. All the very best,



James Anderson

“Buy Your Gold & Silver from the Doc”


Leave a Comment