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Albert Sung is the author of Correlation Economics, monitoring breaking economic news on a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at Ashland, a... More
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Correlation Economics
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  • Gold Demand And Capacity

    An interview from Eric Sprott came to my mind today. Apparently, Dubai will build the largest refinery in the world with 1400 tonnes/annum gold refining capacity. You can put that next to the 3000 tonnes/annum Swiss gold refining capacity today. That's a lot of capacity coming online. Now why would someone do this? It's simple, because demand for gold is going up, not down.

    Just like in the oil refining industry, capacity follows demand. The more people consume gasoline (or gold jewelry), the more oil refining capacity (or gold refining capacity) is needed.

    This is the gold refining picture today. If you add it all up we get around 8000 tonnes/annum. Most of these are Swiss companies. But now you can add Dubai's Kaloti to that list.

    I really wonder what will happen at this stage when demand is going up, while gold supply is bound to go down in 2015.

    Tags: GLD
    May 10 7:10 AM | Link | 2 Comments
  • Depletion Curves: What Oil Depletion Teaches Us In Predicting The Silver Price

    Crude oil depletion can be a good indicator of what can happen to the price of something that gets depleted.

    The following is a extraction/depletion curve for U.S. crude oil. The blue area represents the U.S. crude oil reserve. As you can see, the U.S. has already peaked in oil extraction in 1970 as their reserves are diminishing.

    Now let's look at the world crude oil depletion curve. Almost the same, but the peak is delayed from 1970 to 2000. It's this curve that we need to monitor to guess what will happen to the crude oil price.

    When we look at the crude oil price, we can see that the 1970 U.S. crude oil extraction peak had spurred the OPEC crisis and a spike in the crude oil price occurred from $2/bbl to $30/bbl.

    Then, when world crude oil extraction peaked in 2000, we got a second spike in crude oil price from $33/bbl to $110/bbl.

    That's what I call the "price effect" of extraction peaks. Namely, that when the peak occurs, the price will move significantly higher the next few years.

    Now, what I find interesting is that we can easily use this little "theory" on other things and most particular on silver, because I believe we are nearing a depletion stage now on silver in a few years.

    So this is the current world silver extraction curve. We see that the peak will occur in 2020.

    The extraction curve can be seen below. You can see that silver extraction will rise the fastest in 2020. After that, we will only have lower and lower production going forward. And that's the time when the silver price will start to surge.

    Learning from the oil depletion curve is a good way to predict what will happen for silver a few years from now. And it will be rosy.

    Tags: SLV
    May 04 12:59 PM | Link | 2 Comments
  • Do You Choose The Red Pill Or The Blue Pill?

    It is a real mystery how the European unemployment rate is 12%, while the U.S. unemployment rate is 6%, half of the European unemployment rate.

    Obviously, the U.S. unemployment rate is not a good measure anymore for the state of the U.S. jobs market. Ever since the crisis started in 2009, the labor force participation rate has declined, so the jobs market was not improving. Recessions occur when the labor force participation rate drops, which means we're in a recession since 2008 and have not gone out of this recession at all.

    The U.S. unemployment rate should have soared to 10% at least, when counting all the people out of the labor force and this correlation proves it. Also, if next quarter has negative GDP as well, then we are officially in recession, which is very plausible, considering the decline in the labor force participation rate.

    So which chart do you take, the red pill, or the blue pill? Contrary to the Matrix, the red pill is fantasy, while the blue pill is reality.

    May 02 9:53 AM | Link | Comment!
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