Hi,
I'm fairly new to precious metals ownership. I was just wondering about something which might affect the supply and demand dynamics of gold, and hence the consequences for owning it as a long term hedge against inflation.
How do we know that gold is not being mined and stock-piled secretly? i.e. what if someone were to aquire a large position in gold directly from the ground but forego disclosing that position? Couldn't he crash the price at some point in the future by suddenly dumping it on the market all in one go?
Is it even illegal for someone to do that? I'm guessing not because none of the official inventory numbers would be worth looking at / relying on.
Hi, and welcome. The point is that mining is costly. You can "secretly" mine all the gold you want but you can't do it for free no matter how secretly you do it. The worldwide gold holdings in monetary form (coins, bars both official and private) is estimated around 60,000 tons. This link shows worldwide gold production around 2,500 tons in 2008. So, even if some super-rich family were to "secretly" buy up all the gold mines in the entire world and "secretly" divert all gold production from its current uses to their coffers, it would take 25 years for them to build a pile of gold big enough to double the existing monetary gold market. Such a doubling would crash gold for sure, but in the long-run it would still only cause a relatively modest 50% devaluation (twice as much gold = roughly 1/2 the price). In the same period of time, fiat paper money will have devalued by at least the same amount. The official BLS inflation calculator shows that $1 in 1987 buys the same as $2 in 2011... 24 years, 50% devaluation.
Clayton -
Also,