U.S. GOLD SCRAP MARKET DRYING UP: Americans Pawned Off Their Best Asset To Go Further Into Debt

Steve St. Angelo Steve St. Angelo

Steve St. Angelo

May 3rd, 2017 Comments

After the U.S. economy disintegrated in 2008, due to the Banking and Housing crisis, Americans pawned off a record amount of gold. How much gold? Nearly, 32 million oz (1,000 metric tons). That’s one heck of a lot of gold. Matter-a-fact, U.S. gold scrap supply at its peak of 160 metric tons (mt) in 2011, was more than any other country in the world, even India and China.

It is quite unfortunate that Americans have pawned off their best asset only to go further into debt. Thus, enabling them to buy more garbage and trinkets they don’t need. This is quite the opposite of Americans who become extremely frugal and financially responsible after the 1930s Great Depression. Today, banks have made it easy for Americans to BUY NOW and PAY LATER.

The consequences of this “Buy now, pay later” economic model is explained in this recent Zerohedge article, 45% Of Americans Spend Up To Half Their Income Repaying Credit Card Debts:

First, roughly 50% of Americans have debt balances, excluding mortgages mind you, of over $25,000, with the average person owing over $37,000, versus a median personal income of just over $30,000.

Therefore, it’s not difficult to believe, as Northwestern Mutual points out, that 45% of Americans spend up to half of their monthly take-home pay on debt service alone... which, again, excludes mortgage debt.

Because 45% of Americans are paying up to half of their monthly income to pay down credit cards and debt, they can’t use this income to purchase new goods and services. Thus, a staggering amount of the U.S. Gross Domestic Product (GDP) has been brought forward… thanks to easy credit and credit cards.

And, This is what Americans spent the most money on in the first quarter:

Americans Spending: Q1 2017

But that doesn’t mean that Americans stopped spending completely, quite the contrary. According to the BEA’s “goalseeked” models, even as retail sales tumbled, as Obamacare continued to drain disposable income away from other discretionary purchases, Americans – who spent far less on cars, clothing, and housing in the first quarter than in Q4 – were scrambling to buy... recreational vehicles!?

When I travel up and down the interstate where I live, I see a lot of these Recreational Vehicles (RVs), especially on the weekends. What is even more hilarious, is to see a huge 4X4 truck pulling a large RV, which is also pulling a smaller trailer behind it with two ATVs on it. All of these vehicles consume one hell of a lot of fuel.

This sudden motivation for Americans to get into an RV and leave the RAT RACE (for a weekend), makes perfect sense to me. This is an extremely important indicator showing how Americans would rather go further into debt up to their eyeballs... just to GET AWAY from it all. Americans spending a record percentage of their funds on RVs to escape the insanity, suggests that the economy is getting ready to roll over and fall off a cliff.

Of course, Americans always want to do everything BIG. So, if you have the money (or credit) and a very large truck, you can pull one of these babies down the highway:

Large RV

Most of the RVs I see, have two axles. However, this one has four axles and more square feet than some small homes in older areas surrounding big cities. Unfortunately, RVs will be one of the first items that will go extinct in the United States when the domestic oil industry disintegrates.

Regardless, let’s get back to the drying up of the U.S. secondary gold supply market.

U.S. Gold Scrap Supply Declines To The Lowest Level In Recent History

According to the data put out in the GFMS 2017 World Gold Survey, U.S. gold scrap supply fell to a low of 58.7 metric tons (1.9 million oz) in 2016 versus a record 160 metric tons (5.1 million oz) in 2011:

U.S. Gold Scrap Supply 2010-2016

What is interesting to see in this chart is that the U.S. gold scrap supply in 2016 (58.7 metric tons) is nearly two and a half times less than it was in 2010 (143 metric tons) while the gold price was even higher. Thus, Americans pawned off a great deal more gold in 2010 when the price was lower at $1,225 compared to $1,267 in 2016. This means the U.S. gold scrap supply market is drying up.

This can be more clearly seen in the following chart below:

U.S. Gold Scrap Supply 2003-2016

Not only has the U.S. gold scrap supply fallen 2.5 times from its peak in 2011, but it is also less than it was in 2003 when the gold price was 3.5 times less. Americans pawned 67.6 metric tons (mt) of gold in 2003 when the price was $363 per ounce. However, with the gold price at a much higher level of $1,267 last year, U.S. gold scrap supply fell to a low of 58.7 mt.

Again, the data implies that the U.S. secondary gold scrap supply market is likely drying up.

As was stated at the beginning of the article, the total U.S. gold scrap supply equaled nearly 1,000 mt from 2008 to 2016 (the actual figure was 982 mt). What is even more interesting, is if we compare U.S. jewelry demand versus gold scrap versus China & India.

When the gold price reached a peak of $1,900 in 2011, U.S. jewelry demand was 60.3 mt. Again, this is the year the U.S. gold scrap supply reached a record 160 mt. We must remember, most of the gold scrap comes from recycled gold jewelry. This means, Americans pawned 266% more gold than their gold jewelry demand in 2011.

Here are the 2011 Gold figures for the U.S., China & India:

2011 U.S. Gold Scrap 160 mt / 60.3 mt Gold Jewelry Demand = 266%

2011 Chinese Gold Scrap 144 mt / 547 mt Gold Jewelry Demand = 26%

2011 Indian Gold Scrap 58 mt / 667 mt Gold Jewelry Demand = 9%

As we can see, Americans pawned off 266% more gold than their annual gold jewelry demand in 2011, versus 26% for the Chinese and only 9% for Indians. While some Chinese and Indians were selling their gold jewelry as scrap in 2011, the majority were holding on to it, especially in India. Of course, this is no secret as Indian tradition is to build wealth by acquiring gold jewelry.

Americans are in serious trouble as they have sold off the family’s gold jewels to go further into debt, while the Asians and Indians continue to acquire the yellow precious metal. When the markets finally crack, very few Americans will be holding gold. Unfortunately, the majority of Americans will see their highly inflated investments in STOCKS, BONDS, and REAL ESTATE collapse while the value-price of gold skyrockets.

If you're looking for Chinese Gold coins check them out here.

Steve St. Angelo

About the Author:

Independent researcher Steve St. Angelo started to invest in precious metals in 2002.  In 2008, he began researching areas of the gold and silver market that the majority of the precious metal analyst community has left unexplored.  These areas include how energy and the falling EROI – Energy Returned On Invested – stand to impact the mining industry, precious metals, paper assets, and the overall economy.