The Tiny Size
of the Gold Market
Silver Stock Report
by Jason Hommel, June 5, 2007
One of the reasons that big money
managers, and the world's wealthiest people, don't understand gold, and silver,
is that human beings, even very, very smart people, just do not understand very
large numbers, nor relative size.
Money in U.S.
banks, M3, is growing at a rate of about 12% per year, or more. So, in the last 12 months, it grew by
about $1.3 trillion dollars, which is $1,300 billion
The world gold market grew this year
at a rate of about 1.5%, as the world's mines produced about 2500
tonnes, and it has been estimated that there is about 155,000
tonnes of gold in the world.
also don't understand weights and measures. Big money managers must learn how many
ounces of gold are in a tonne. And
itís troy ounces, not avoirdupois ounces, and gold is measured on the world
stage in metric tonnes, spelled tonnes, not short tons.
tonne = 32,150.7466 troy ounces.
So, how much is 2500 tonnes of annual world gold production
worth? Well, times 32,151 ounces,
its 80 million ounces.
And how much is 80 million ounces of
gold worth, at $675/oz.?
It's worth only $54 billion
See, big money managers simply don't
know the numbers! They also probably fail
to account for the value of that new gold.
Comparing dollar for dollar, it compares like this:
of new money printed.
$54 billion dollars worth of
new gold mined, at $675/oz.
So, the U.S. is actually creating new
paper money at a rate 24 times as much as new gold. (1300 / 54 =
And of course, this is hardly a fair
comparison. I'm comparing U.S.
dollars to world gold production.
We should compare total world paper money creation rates, to world gold
mining rates. But that's a lot of
work, and I don't know if I can source it all out. My well researched guess is that the
U.S. dollar is only about 1/4 of the world total increase of paper money. (It is widely admitted that other
nations are now printing up money even faster than the U.S.!) So, let's multiply
by a factor of 4.
$1,300 x 4 /
54 = 96!
Thus, the world is creating new money
at about a rate nearly 100 times faster than the world's value of new
So, again, how much is $1300 billion of
new U.S. money created this year?
about how many dollars China now has.
And China has continued to announce that they should buy gold to
diversify. People just don't
understand what this means for gold prices, because they don't understand large
numbers, nor do they understand the numbers in the gold
A "wise allocation" would be 50-100% at
this stage. But a more realistic, "foolish" allocation would be at
least 5-10%. But what happens
if China tries to spend that $65 to $130 billion on gold, when annual world gold
production, 2500 tonnes, at $675/oz., is worth only $80
It's anyone's guess, so go ahead and
guess. I'll wait. But that's just China.
gold now rising since the bottom in 1999 or 2001, people are now beginning
to look at gold, and paper money, they are beginning to discover the relative
size of these markets, or read articles like this one.
investors, the world over, may have about $40 trillion worth of investments to
allocate and spend on gold. What if
5% of that went into gold? That's
$2 trillion dollars, or $2,000 billion.
will happen when that much money is going to move into gold, when the world's
annual gold production is a mere $54 billion?
How much gold is traded in a year? Most of the gold in the world is not
traded, it is held, for a very, very long time, for times just such as now, when
the world wakes up from the delusion of paper money.
Some of the best guesses that I've read are that only about 5,000
tonnes of gold trades each year, which is about twice what is mined
annually. Some gold is
recycled. And central banks "add"
to the supply through selling.
There is a big issue over how much gold
the central banks regularly sell, and have sold. With good reason, because, officially,
the world's central banks hold 33,000 tonnes of gold. If half of that is leased out, then
buying back that much gold on the world market is also going to cause gold
prices to rise substantially.
Let me back up a
minute, to help explain that. In
1999, European banks decided to limit how much gold they would sell per year to
500 tonnes, and no more than that, so as to avoid hurting the gold price. (They were also leasing gold, which also
adds even more to supply.) Good
timing. They picked the exact
bottom of the gold market, so they were right that their prior, uncoordinated
sales, and leases, were hurting gold prices. In fact, it spooked the market so badly,
to limit gold sales, that gold prices rocketed up from about $260 to $330/oz in
less than a week, and that explains the vertical spike you see on gold price
charts going back to late 1999.
exciting, if you were paying attention.
Now, this was not "new gold
sales". Nor was it "less gold
sales". It was merely an
announcement of "not more than 500 tonnes/year" of gold sales. But really, it was a confirmation of
major gold sales.
Today, we have many confirmations of
major gold buying, on the horizon.
China will be buying someone's gold. CalPERS manages over $234
billion for California employees, and is bullish on commodities now,
I read that "Barclays Capital did a survey of their institutional
clients and 70% of them said they would have 5% of their assets in gold in three
I don't know what these money managers are thinking. If they knew about the relative size of
the gold market, the price would be $2000/oz. by tomorrow morning. As it is, the gold price is likely to
hit $2000/oz. within 3 years, and most will still miss the big easy
Quite a few who manage up to $100
million have contacted me, asking me for my help. But what can I do? I'm not selling my
I can point them to the largest and
most trusted refiner in the U.S. which is Johnson Matthey.
How else can I help? I
sell a "look at my
portfolio", but let me explain.
I spend the money on ads to get the word out. Not to brag, but just so you know the
size, it allows me to spend about $400,000/year, which is not much in
relation to my capital gains, which are somewhere about 100% per year, on
My "look at my
portfolio" newsletter shows my own well-diversified portfolio (worth about
$12.5 million) invested in about 30 natural resource exploration and
development stocks. (It was worth
about $15 million in May, 2006, and about $5 million in November, 2005.) Again, this is not bragging, but rather,
itís very important to know the relative size of things in the investment
world. Many of the stocks in my portfolio
are looking to raise anywhere from $50 million to $500 million to get started
mining, so if you are looking for investment opportunities of
that relative size, my portfolio can help point you to some of
the best companies in the industry. But if you are looking for investment
opportunities greater than that size, then you ought to avoid the overvalued
major mining companies, and buy gold.
If you manage around $10 million, my advice is
different; you ought to acquire as much silver as possible, up to about 25%
of your portfolio. It may take
about 10 orders of $250,000 each to get $2.5 million worth of silver, and you
may push up silver prices about a quarter per ounce, and you may end up
squeezing some of the largest coin shops in the U.S., so be
And if you need to invest less than
$10,000, then don't worry about the stocks in my portfolio. Just count yourself fortunate to be
managing the right size of money to be able to actually put 100% of it into
silver, and be glad that you don't have to be burdened with the responsibility
of researching stocks. Instead of
researching stocks, it will probably pay you more to get a second job, working
for people who have more money than they know what to do with. Then, spend as little as
possible, to invest as much as possible into silver.
One of my
favorite silver stocks right now is Tumi Resources. It's my 6th largest
holding in my portfolio. I own 708,500 shares, and 200,000 warrants at
$.80. (Tumi has not paid me to mention them.)
(TM.V, TUMIF.OB) http://www.tumiresources.com/en/
Tumi has 31.3 million shares fully diluted.
At a share
price of $.85 Cdn x .95 to convert to U.S. dollars = $25 million market
In mid April, 2007, Tumi hit 3000 grams/tonne of silver over 12
meters, which was one of the highest grade silver drill results I've
Tumi Resources Limited - Tumi Intersects 24.4m Grading 6.4 g/t Gold and
1,629 g/t Silver at La Trini, Mexico
Tumi has a market cap that is so small, that most of the
world will be unable to take advantage of it without drive up the
price rises substantially. But that's how it works in a world of limited
resources, where it's first come, first served.
stock price is on a nice dip, too, since the stock price was recently
driven up on the news release of the drill result. So right now, the
stock is on a dip, while silver has recently gained, which is the perfect time
But then again, the law of relative size can work against you in
the short run, since this is widely read newsletter, going out to 50,000
But just as any newsletter can help drive up a little stock,
so, too, will the undeniable facts presented in this letter drive up gold
and silver prices.