Eric Sprott: Do Western Central Banks Have Any Gold Left?

Tyler Durden's picture

From Eric Sprott and David Baker of Sprott Asset Management

Do Western Central Banks Have Any Gold Left???

Somewhere deep in the bowels of the world’s Western central banks lie vaults holding gargantuan piles of physical gold bars… or at least that’s what they all claim. The gold bars are part of their respective foreign currency reserves, which include all the usual fiat currencies like the dollar, the pound, the yen and the euro.

Collectively, the governments/central banks of the United States, United Kingdom, Japan, Switzerland, Eurozone and the International Monetary Fund (IMF) are believed to hold an impressive 23,349 tonnes of gold in their respective reserves, representing more than $1.3 trillion at today’s gold price. Beyond the suggested tonnage, however, very little is actually known about the gold that makes up this massive stockpile. Western central banks disclose next to nothing about where it’s stored, in what form, or how much of the gold reserves are utilized for other purposes. We are assured that it’s all there, of course, but little effort has ever been made by the central banks to provide any details beyond the arbitrary references in their various financial reserve reports.

Twelve years ago, few would have cared what central banks did with their gold. Gold had suffered a twenty year bear cycle and didn’t engender much excitement at $255 per ounce. It made perfect sense for Western governments to lend out (or in the case of Canada – outright sell) their gold reserves in order to generate some interest income from their holdings. And that’s exactly what many central banks did from the late 1980’s through to the late 2000’s. The times have changed however, and today it absolutely does matter what they’re doing with their reserves, and where the reserves are actually held. Why? Because the countries in question are now all grossly over-indebted and printing their respective currencies with reckless abandon. It would be reassuring to know that they still have some of the ‘barbarous relic’ kicking around, collecting dust, just in case their experiment with collusive monetary accommodation doesn’t work out as planned.

You may be interested to know that central bank gold sales were actually the crux of the original investment thesis that first got us interested in the gold space back in 2000. We were introduced to it through the work of Frank Veneroso, who published an outstanding report on the gold market in 1998 aptly titled, “The 1998 Gold Book Annual”. In it, Mr. Veneroso inferred that central bank gold sales had artificially suppressed the full extent of gold demand to the tune of approximately 1,600 tonnes per year (in an approximately 4,000 tonne market of annual supply). Of the 35,000 tonnes that the central banks were officially stated to own at the time, Mr. Veneroso estimated that they were already down to 18,000 tonnes of actual physical. Once the central banks ran out of gold to sell, he surmised, the gold market would be poised for a powerful bull market… and he turned out to be completely right – although central banks did continue to be net sellers of gold for many years to come.

As the gold bull market developed throughout the 2000’s, central banks didn’t become net buyers of physical gold until 2009, which coincided with gold’s final break-out above US$1,000 per ounce. The entirety of this buying was performed by central banks in the non-Western world, however, by countries like Russia, Turkey, Kazakhstan, Ukraine and the Philippines… and they have continued buying gold ever since. According to Thomson Reuters GFMS, a precious metals research agency, non-Western central banks purchased 457 tonnes of gold in 2011, and are expected to purchase another 493 tonnes of gold this year as they expand their reserves.1 Our estimates suggest they will likely purchase even more than that.2 The Western central banks, meanwhile, have essentially remained silent on the topic of gold, and have not publicly disclosed any sales or purchases of gold at all over the past three years. Although there is a “Central Bank Gold Agreement” currently in place that covers the gold sales of the Eurosystem central banks, Sweden and Switzerland, there has been no mention of gold sales by the very entities that are purported to own the largest stockpiles of the precious metal.3 The silence is telling.

Over the past several years, we’ve collected data on physical demand for gold as it has developed over time. The consistent annual growth in demand for physical gold bullion has increasingly puzzled us with regard to supply. Global annual gold mine supply ex Russia and China (who do not export domestic production) is actually lower than it was in year 2000, and ever since the IMF announced the completion of its sale of 403 tonnes of gold in December 2010, there hasn’t been any large, publicly-disclosed seller of physical gold in the market for almost two years.4 Given the significant increase in physical demand that we’ve seen over the past decade, particularly from buyers in Asia, it suffices to say that we cannot identify where all the gold is coming from to supply it… but it has to be coming from somewhere.

To give you a sense of how much the demand for physical gold has increased over the past decade, we’ve listed a select number of physical gold buyers and calculated their net change in annual demand in tonnes from 2000 to 2012 (see Chart A).

Numbers quoted in metric tonnes.
† Source: CBGA1, CBGA2, CBGA3, International Monetary Fund Statistics, Sprott Estimates.
†† Source: Royal Canadian Mint and United States Mint.
††† Includes closed-end funds such as Sprott Physical Gold Trust and Central Fund of Canada.
^ Source: World Gold Council, Sprott Estimates.
^^ Source: World Gold Council, Sprott Estimates.
^^^ Refers to annualized increase over the past eight years.

As can be seen, the mere combination of only five separate sources of demand results in a 2,268 tonne net change in physical demand for gold over the past twelve years – meaning that there is roughly 2,268 tonnes of new annual demand today that didn’t exist 12 years ago. According to the CPM Group, one of the main purveyors of gold statistics, the total annual gold supply is estimated to be roughly 3,700 tonnes of gold this year. Of that, the World Gold Council estimates that only 2,687 tonnes are expected to come from actual mine production, while the rest is attributed to recycled scrap gold, mainly from old jewelry.5 (See footnote 5). The reporting agencies have a tendency to insist that total physical demand perfectly matches physical supply every year, and use the “Net Private Investment” as a plug to shore up the difference between the demand they attribute to industry, jewelry and ‘official transactions’ by central banks versus their annual supply estimate (which is relatively verifiable). Their “Net Private Investment” figures are implied, however, and do not measure the actual investment demand purchases that take place every year. If more accurate data was ever incorporated into their market summary for demand, it would reveal a huge discrepancy, with the demand side vastly exceeding their estimation of annual supply. In fact, we know it would exceed it based purely on China’s Hong Kong gold imports, which are now up to 458 tonnes year-to-date as of July, representing a 367% increase over its purchases during the same period last year. If the imports continue at their current rate, China will reach 785 tonnes of gold imports by year-end. That’s 785 tonnes in a market that’s only expected to produce roughly 2,700 tonnes of mine supply, and that’s just one buyer.

Then there are all the private buyers whose purchases go unreported and unacknowledged, like that of Greenlight Capital, the hedge fund managed by David Einhorn, that is reported to have purchased $500 million worth of physical gold starting in 2009. Or the $1 billion of physical gold purchased by the University of Texas Investment Management Co. in April 2011… or the myriad of other private investors (like Saudi Sheiks, Russian billionaires, this writer, probably many of our readers, etc.) who have purchased physical gold for their accounts over the past decade. None of these private purchases are ever considered in the research agencies’ summaries for investment demand, and yet these are real purchases of physical gold, not ETF’s or gold ‘certificates’. They require real, physical gold bars to be delivered to the buyer. So once we acknowledge how big the discrepancy is between the actual true level of physical gold demand versus the annual “supply”, the obvious questions present themselves: who are the sellers delivering the gold to match the enormous increase in physical demand? What entities are releasing physical gold onto the market without reporting it? Where is all the gold coming from?

There is only one possible candidate: the Western central banks. It may very well be that a large portion of physical gold currently flowing to new buyers is actually coming from the Western central banks themselves. They are the only holders of physical gold who are capable of supplying gold in a quantity and manner that cannot be readily tracked. They are also the very entities whose actions have driven investors back into gold in the first place. Gold is, after all, a hedge against their collective irresponsibility – and they have showcased their capacity in that regard quite enthusiastically over the past decade, especially since 2008.

If the Western central banks are indeed leasing out their physical reserves, they would not actually have to disclose the specific amounts of gold that leave their respective vaults. According to a document on the European Central Bank’s (ECB) website regarding the statistical treatment of the Eurosystem’s International Reserves, current reporting guidelines do not require central banks to differentiate between gold owned outright versus gold lent out or swapped with another party. The document states that, “reversible transactions in gold do not have any effect on the level of monetary gold regardless of the type of transaction (i.e. gold swaps, repos, deposits or loans), in line with the recommendations contained in the IMF guidelines.”6 (Emphasis theirs). Under current reporting guidelines, therefore, central banks are permitted to continue carrying the entry of physical gold on their balance sheet even if they’ve swapped it or lent it out entirely. You can see this in the way Western central banks refer to their gold reserves. The UK Government, for example, refers to its gold allocation as, “Gold (incl. gold swapped or on loan)”. That’s the verbatim phrase they use in their official statement. Same goes for the US Treasury and the ECB, which report their gold holdings as “Gold (including gold deposits and, if appropriate, gold swapped)” and “Gold (including gold deposits and gold swapped)”, respectively (see Chart B). Unfortunately, that’s as far as their description goes, as each institution does not break down what percentage of their stated gold reserves are held in physical, versus what percentage has been loaned out or swapped for something else. The fact that they do not differentiate between the two is astounding, (Ed. As is the “including gold deposits” verbiage that they use – what else is “gold” supposed to refer to?) but at the same time not at all surprising. It would not lend much credence to central bank credibility if they admitted they were leasing their gold reserves to ‘bullion bank’ intermediaries who were then turning around and selling their gold to China, for example. But the numbers strongly suggest that that is exactly what has happened. The central banks’ gold is likely gone, and the bullion banks that sold it have no realistic chance of getting it back.


ECB Data as of July 2012. Bank of Japan data as of March 31, 2012.

* European Central Bank reserves is composed of reserves held by the ECB, Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, The Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.
** Bank of Japan only lists its gold reserves in Yen at book value.

Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.

Notwithstanding the recent conversions of PIMCO’s Bill Gross, Bridegwater’s Ray Dalio and Ned Davis Research to gold, we realize that many mainstream institutional investors still continue to struggle with the topic. We also realize that some readers may scoff at any analysis of the gold market that hints at “conspiracy”. We’re not talking about conspiracy here however, we’re talking about stupidity. After all, Western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be. But if what we are proposing turns out to be true, and those reserves are not physically theirs; not physically in their possession… then all bets are off regarding the future of our monetary system. As a general rule of common sense, when one embarks on an unlimited quantitative easing program targeted at the employment rate (see QE3), one had better make sure to have something in the vault as backup in case the ‘unlimited’ part actually ends up really meaning unlimited. We hope that it does not, for the sake of our monetary system, but given our analysis of the physical gold market, we’ll stick with our gold bars and take comfort as they collect more dust in our vaults, untouched.

2 See notes in Chart A.
5 Mine supply estimate supplied by World Gold Council; YTD gold mine production data suggests that total 2012 gold mine supply will come in lower around 2,300 tonnes, ex Russia and China production. In addition, Frank Veneroso has recently published a new report that warns that the supply of recycled scrap gold could drop significantly going forward due to the depletion ofthe inventories of industrial scrap and long held jewelry over the past decade.


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Flakmeister's picture

Of their own? No, probably not

strannick's picture

Canada dumped its gold cause Reagan with smiling irish eyes asked Mulroney to do so. England managed to unload half its gold right at the bottom (Browns bottom) of the market.

Are Central Banks above dumping their gold to keep up the charade of paper backed by the full faith of their government? How you answer that question will determine how well you will fare in the coming financial conflagration.

SafelyGraze's picture

word of the day: preconfiscated. (compare 'rehypothecated')

example usage: the banks do not physically possess their metal, but they virtually (and essentially) do because all their holdings exist in the form of preconfiscated metal.

Xibalba's picture

Do gold receipts count?  

SafelyGraze's picture

"Do gold receipts count? "


as do receipts for the receipts. which is how preconfiscation relates to rehypothecation.

example usage: we don't have the million ounces; we had receipts for those ounces, but we loaned the receipts to someone else. here is the receipt for those receipts. hence we have a million preconfiscated ounces in our vault. what did you say your name is?

Zer0head's picture

The Obama tape has been released


listen to it all but some has been cut out


he clearly knows Jeremiah Wright very well and Obama clearly thought the Katrina folks got screwed



Of interest he seems to have a different accent than the fellow I see these days giving speeches, which makes me wonder in a conspiratorial sort of way if Obama is in fact Obama or is he  some impostor  see this comparison of the Two Obamas


Much more important and on the topic  of impostors this now removed video from youtube of Bloomberg's favorite ego Sara (but still available here) 

in what can only be described as a bizarre dream involving pantys (I think there were pantys) and microhones or some other broadcast type implement

Xibalba's picture

wtf does this have to do with gold reciepts?  

Bicycle Repairman's picture

If the western central banks have no gold, then gold standard = WWIII.

francis_sawyer's picture

Central Banks?... Do they hold gold?...


Well ~ of course THAT'S NOT the real question here, is it?... HISTORY (if you study it ~ which you probably WON'T ~ & which is why ur a dupe) will tell you that JEWS HOLD GOLD (& in this case, JEWS own all the illicit central banks (because it is their INSTINCT to be criminals)...  Anyway... it basically means, JEWS hold gold [congrats 4 them ~ I guess they're not as stupid as you think])...

The half dozen JEW JUNKERS (who get PAID full time on ZH to 'junk' francis_sawyer comments), will get their daily SHECKLES junking this comment... Nevertheless ~ IT'S TRUE...


So what is the end resuly?

Basically, NOTHING unspectacular... THEY will continue to confiscate YOUR gold (using various means that they have developed during the ages)... As long as you are focused on LIVING... THEY will be focused on stealing your MONEY (in whatever for it takes in that moment)...

Why?... Because they're JEWS... That's what they do... That's what they've done over spans of ages... GET USED TO IT (& stop junking this type of comment simply because some OTHER lieutenant (media) jew somehow made you feel guilty...



francis_sawyer's picture


So I guess that means that BACTERIA = JEWS...

Thanks for clearing that matter of science up for me between your JUNKING rounds...


Manthong's picture

Of course they have all the reported gold there..

just as sure as the US government complies with the law and produces a budget every year, Fed policy is good for savers like Bernanke says, the market is fair and free to discover price and discount economic conditions, the shadow banking system is accounted for and reconcilable, and the world debt crisis will be resolved without catastrophe .

fuu's picture

<pats francis on the head>

Likstane's picture

Hell yeah! I've been scraping that green stuff next to the toilet this evening and putting it in a petri dish.  I'll boil it in some fermented prunes and see if i can replicate some shiny.  Toilet bowl Gold Bitchetz.!!

Big Slick's picture

Some western bankers even put the selling of the bank's gold on their resume ... oops, then remove it quickly.  Nice sleuthing ZH!

"Turns Out Dumping 1,300 Tons Of Swiss Gold Isn't A Resume Builder After All"

Xibalba's picture

biogold?  hmmm....a lil' desperate are they?

Overflow-admin's picture

Same shit as fuel produced with (uni)corn

BlackVoid's picture

"It would be cost prohibitive to reproduce their experiment on a larger scale, he said"

Nevertheless I am happy to buy your now valueless gold for $800 / ounce.

Robsabi's picture

Francis, Francis...

When someone is violently homophobic, it's usually because they're compensating for something - probably recognition of their own homosexual curiosity, combined with a pathological inability to accept themselves for who they are. It's the same with you. Although it's probably easier for someone to be sure that they don't have some Jewish blood in them (though Zhirinovsky in Russia and maybe even your buddy Hitler were mistaken in this regard) you're clearly compensating for some perceived inadequacy in yourself that's ravaging you as a person.

Schmuck Raker's picture


"......Forget it, he's rolling."

stuckonarock's picture

they been caught with their panties down

DoChenRollingBearing's picture

The Central Bank of DoChenRollingBearing only holds real physical gold.  Bitchez.

Monedas's picture

The Central Gold Fund of Monedas (CGFM) has no physical gold .... being an honest broker .... we ship your gold to you .... we never ever hold OPG (Other Peoples Gold) for them .... it's a conflict of interest .... it's your gold .... possession is the purest form of ownership !  We have no 10 ton vault door with Do Chen roller bearing hinges !   

FoxMulder's picture

It seems that they may have lost it all in a tragic boating accident.

mick68's picture

Come get your "Micknotes" folks. Since I'll soon have more gold than the FED, your Micknotes are more valuable than a US dollar!

Dr Benway's picture

Preconfiscated? I like it lol.

Re gold loans. If country A has 10m oz physical gold and 90m lent to country B, and country B has 10m oz physical and 90m lent to country A, how much gold do the two countries have in total?

IMF says 200m oz, I say 20

pavman's picture

They can't preconfiscate my PMs, they're a sovereign nation's currency other than the one I reside in. Its neither the relm of the US government nor can it be confiscated.  Or at least that's what I'm banking err hoarding on :)

DISCLAIMER: This post is for mere entertainment.  No statements contained herein should be misconstrued as to public admittance of guilt of possession by the poster or willful hoarding of precious metals in any form by the same.

Biosci's picture

Just Sprott talking his book again.  Premium to NAV not high enough anymore?

Better_late_than_never's picture

You would rather Ben Bernanke talk his? How much are you making off his premium?

The Malamute Kid's picture

Erics funds are "Good as gold".  If you invest in them, you can go to Toronto and see the physical silver and gold that backs his funds.

prains's picture



your trollyism is so weak it makes my nut sack genuflect in your general direction but thanks for coming out once every two years

Buck Johnson's picture

The question is who is buying when the central banks dump?

Dr. Sandi's picture

 The result depends on who has more gold, me or the central banks. I'm betting I do.


giggler123's picture

You'll probably find they are doing it to complete the failed system - if you had a fall back on say physical gold than the NWO previous planned might not go your way.  In that case it makes every sense to deplete your last hope...

Silver Bug's picture

Eric Sprott is one of the true great Gold and Silver Vigilantes out there. Another great article.


Do the banks have any gold ? 

Is the Pope Catholic ?

Does a bear shit in the woods ?

Can Ben Bernanke even spell " rehypothecate " ? 

Did Snooki burn her muffin waxing it off for her Playmate photo shoot ?

What is " gold " anyway ?

Isn't that just a term for software bookeeping ?

Sheep won't give a fuck - they just want another GMO corn dog, and Iphone 5. 

Mr Lennon Hendrix's picture

There is gold in that there iPhone 5.

TheFourthStooge-ing's picture


There is gold in that there iPhone 5.

...just don't look too closely if you're at all familiar with iron pyrite.

francis_sawyer's picture

does the pope shit in the woods?

pavman's picture

does the pope shit in the woods?


iamgogi's picture

does shit pope in the woods?

UGrev's picture

No, they do; but they are "Holy Ghost" shit's. 

HungryPorkChop's picture

Yeah right, there's probably $2 worth of gold in the iPhone 5 and it would cost $50 to have it processed and reclaimed.  So in other words, you are hosed. 


Now please send me the $48 I just saved you.