Eric Sprott: Is the West Dishoarding Its Sovereign Treasure?

Tyler Durden's picture


Submitted by Adam Taggart via Peak Prosperity,

We are well into the financial crisis. Everyone’s trying to keep it together, even though it would appear from the reading of the economy things are not going well at all here. And everyone's ignoring things.


But I think, in their hearts, the Central Bankers must know what they’re doing is totally irresponsible. And the tell of that irresponsibility which is the debasing of the currencies is the fact that real things will go up in value. This should be reflected in the price of gold and silver.

So expresses Eric Sprott, CEO and founder of Sprott Asset Management, and one of the most experienced and vocal advocates for owning precious metals.

The past decade has validated Eric's thesis, as gold has risen considerably against all world fiat currencies. But what vexes him is that in recent years, when currency debasement has accelerated to extreme levels, precious metals prices have been clearly suppressed, particularly versus the U.S. dollar.

As the topic of price manipulation is nothing new, Eric finds his focus increasingly drawn to where the precious metals are going at these bargain prices - who is accumulating and who is dishoarding:

I’ve done a lot of work on the flow of metals. I come up with a net change of 2,300 tons a year in new buying in gold when the supply of gold hasn’t even gone up in the last twelve years. And you keep wondering: Well, where’s all this gold coming from?

His findings support the growing meme that there is a massive bullion transfer from West to East. This should particularly concern those in the U.S., EU and Canada as his suspicion is that, increasingly, it's monetary gold that is being sold.

There are several key questions to ask here (not that the data publicly exists to answer them):

  • How much of our sovereign monetary bullion reserves have been sold to date?
  • How much will be sold in the future? (Are we willing to sell all of it? or is there a limit we refuse to let go of?)
  • What will happen to the price of gold & silver when central banks stop selling to another? (Answer: shoot the moon)
  • What will be the fate of those economies that dishorded their treasure? (Answer: lamentable)

When I see China buying 95 tons of gold in December and I read that India bought 100 tons in the month of January, when we all collectively know there’s only about 200 tons a month available –  you have to conclude that G6 Central Banks continue to sell their gold in a very non-transparent fashion.


One of the things we saw in December was that the U.S. Department of Commerce reported that U.S. exports of gold were $4 billion. We exported 2.5 million ounces of gold. And where it comes from, [only] God knows; the country only produces 8.8 million a nd most of that’s used internally. So I don’t know how you just come up with 2.5 million ounces that you’re able to export. So I believe that even though it’s described as non-monetary gold, my guess is that it is monetary gold.


There’s lots afoot here in central banking to try to keep it organized. And I think one of those things is to keep the price suppressed.


But the non-G6 nations have been huge buyers of gold, and I think the more anybody looks at the system from outside looking in, they realize they have to have gold and silver, notwithstanding the nonsense that goes on in COMEX and the LBMA (London Bullion Market Association).


When I got involved in the gold market, it was assumed that the central banks had something like 36,000 tons of gold. And there was a great study done by Frank Veneroso where he suggests 18,000 those tons didn’t even exist anymore.


The [global] central banks are sellers of 400 tons in an overt fashion. Now we see buying of over 500 tons. That, just in itself, is a 900-ton change in a 4000-ton market, if I’m including recyclables here. And yet there’s been no increase in supply.


So I have to assume that these central banks are running low, and the question in my mind is, do they just go down to zero and then give up?


Or do they look in the cupboards one day and say look, this is just not going to work because the intensity of buying by people, like China in particular, has just gone absolutely bonkers. And it looks like India, notwithstanding putting a surtax or excise tax on gold, the demand seems to be very firm. And as you mentioned, mint sales have been amazingly strong here.


So I think there’s enough element of the world who get it that the pressure’s going to continue to be on the price of gold going higher. And yes, there’s nothing we can do in terms of what’s going on in the COMEX and the LBMA, but we keep seeing more and more people asking for delivery, even in the COMEX. So I think that the day can’t be far off. We can’t predict when it’s going to be, but the natural stage should be that the price of gold is going up, and we’re in such a tremendous financial crisis that it hasn’t been allowed to manifest itself because they’re putting out fires all the time.

For precious metals holders licking their wounds from the carnage of the past several months [23], this podcast offers both new insights and sound reminders of the long-term reasons for owning gold and silver. Those on the sidellines considering entering into the precious metals, perhaps for the first time, should consider reading our guide to Buying Gold & Silver [24] after listening to this podcast. 

Click the play button below to listen to Chris' interview with Eric Sprott (34m:40s):

Click here to read the full transcript

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Sun, 02/24/2013 - 23:52 | 3273019 chindit13
chindit13's picture

For four years I have been flitted between the inflation/deflation camps, never settling, but trying to span the chasm with hedges.  If I really thought the end of fiat was nigh, I'd load up with debt (at current low rates) and accumulate as many pieces of arable land, manufacturing facilities, needed natural resources, and fixed structures as I could, and as fiat tumbled I'd catch the falling knife and repay all the borrowing in the cheapening fiat.  I wouldn't bother with gold, as I could get that, if I wanted it, in trade for the productive assets I would have acquired.

Isn't this exactly what the elite are doing now?

Sun, 02/24/2013 - 23:59 | 3273028 akak
akak's picture

The "end of fiat" does not even have to be nigh in order for your scenario to work rather well for those able to engage in it, either.  Too bad it is difficult going on impossible for the average Joe to borrow any significant amount of money at fixed rates nowadays; it's almost as if their banks suspect that those rates are artificially low today, and destined to rise noticeably in the years ahead.

Mon, 02/25/2013 - 00:31 | 3273103 devo
devo's picture

Inflation not deflation.

They want to wipe out U.S. debt, medicare, etc with hyperinflation rather than tough political choices or honest default, but in a slow and organized way. Politicians use hyperinflation as a political tool from time to time, knowing they can go on a temporary gold standard when shit hits the fan. This is one of those times. Deflation does nobody good (except the poor and savers, of which we have few) so it won't happen until it does (likely in the aftermath of a hyperinflation). I can't believe people still believe in deflation. It ain't happening. Just realize who wins (poor) and who loses (rich) in a deflation and you have your answer. If the stock market collapses 50% they'll just print 200bil a month.

There are pockets of deflation (houses) and we should have deflation, but we don't. Maybe that's what is confusing you.

Mon, 02/25/2013 - 01:37 | 3273241 delacroix
delacroix's picture

plenty of manufacturing facilities for sale in detroit, on the cheap. there was a time when if you said GM or sears would go bankrupt. people would think you were crazy. there was a time not too long ago, when monetizing the national debt, would have been met with, "they wouldn't do that". we are in the twilight zone now. things may stabilize, but there's lots of rot that needs to be seperated from the salvageable.

Sun, 02/24/2013 - 23:45 | 3272992 chindit13
chindit13's picture

Let's suppose Sprott is sprott-on, and the West really does dishoard all its "treasure" to the East.  Suppose further the East demands payment for exports in gold or a gold-backed currency.  What would the West do?  Maybe something really bizarre, like rebuild its own manufacturing base.  Surely the Western elite would never want to do something like that, would they?  All those terrible employment issues...who needs that aggravation?  Also, if one needs resources, there's a whole lot of resources in fiat-loving countries such as Canada and Australia, not to mention the US, and certain feudal monarchies that happen to sit atop oil might like to remain in good graces with those nations sporting powerful militaries.

Mon, 02/25/2013 - 01:01 | 3273193 devo
devo's picture

Confiscate gold and nationalize mining companies.

Sun, 02/24/2013 - 21:49 | 3272774 dark pools of soros
dark pools of soros's picture

" (Are we willing to sell all of it?) "


hell yeah, we'll sell 10x all of it!!



Sun, 02/24/2013 - 22:49 | 3272896 Room 101
Room 101's picture

'what if all this is not being done out of short sighted stupidity or greed'?

It probably isn't being done entirely out of stupidity and greed.  I'm not much of a conspiracy theorist. While I do think that a lot of our markets are manipulated to varying degrees, I don't see it as being a complete control scenario with the evil banksters wringing their hands in glee. 

Here is a possible explanation: Keynesian economics works.  For awhile.  The question is for how long? I guess we're gonna find out.

Here is another possible explanation: TPTB don't much care about gold. I mean if you control it all anyway, why would you give a shit about gold as opposed to oil or technology or anything else?

My personal view is that the simplest explanations are usually the correct ones. Here is my simplistic view: the things that are of value to the east (gold) are being traded for the things that the west values (toys and tech). And by and large most are pretty happy with the trade.  The spice flows not so much because of a wicked conspiracy but because those on both side of the transaction want it to flow. 

And fuck you bernanke.      

Sun, 02/24/2013 - 22:42 | 3272884 thewayitis
thewayitis's picture

Well lets not forget when China backs their currency with GOLD......And countries are buying less and less US Treasurys right. We're buying more of more of US Treasuries. In a sense: Eating our own SHIT.  Arrrg

Gold Bitches

Mon, 02/25/2013 - 01:05 | 3273201 headless blogger
headless blogger's picture

All these guys know what they're talking about, including Sprott; it's their business to be well informed for their clientele.

But they are over-looking the manipulative powers the controller groups have over everything; which obviously includes gold/silver.

At this point it's probably better for people to store food and non-perishable items; have a get-a-way plan, know where abandoned cabins are and how to get there; fishing equipment, etc.

Mon, 02/25/2013 - 01:43 | 3273247 delacroix
delacroix's picture

maybe they'll figure out a way to pull an MF global on sprott. where's that silver stored?

Mon, 02/25/2013 - 01:58 | 3273264 AE911Truth
AE911Truth's picture

Dear Mr. Sprott,

Do the following two links help explain where all the gold is comming from, where all the gold is going to, and why?

Mon, 02/25/2013 - 03:17 | 3273341 resurger
resurger's picture

Stack em'

Mon, 02/25/2013 - 09:40 | 3273619 proLiberty
proLiberty's picture

Hanke on Hyperinflation, Monetary Policy, and Debt
Steve Hanke

Steve Hanke of Johns Hopkins and the Cato Institute talks with EconTalk host
Russ Roberts about hyperinflation and the U.S. fiscal situation. Hanke
argues that despite the seemingly aggressive policies of the Federal Reserve
over the last four years, there is currently little or no risk of serious
inflation in the United States. His argument is that broad measures of the
money supply lag well below their trend level. While high-powered reserves
have indeed expanded dramatically, they have not increased sufficiently to
offset reductions in bank money, in part because of requirements imposed by
Basel III. So, the overall money supply, broadly defined, has fallen. Hanke
does argue that the current fiscal path of the United States poses a serious
threat to economic stability. The conversation closes with a discussion of
hyperinflation in Iran--its causes and what might eventually happen as a result.

>From the transcript::

Russ: So, we're going to talk about Iran in a few minutes, but before we do
that, let's talk about the United States. Which--we are not having
hyperinflation; but we do have a fiscal problem. We do have--we are spending
a relatively large amount, relative to what we take in. We are spending a
trillion more than we take in, a little over a trillion. We've done it for
four years in a row. We did it before that in a significant amount as well.
And people keep buying our bonds. And so it seems okay. But one of the
institutions that's buying those bonds is the Federal Reserve. I've read
that a very large portion of U.S. Treasuries are being purchased by the
Federal Reserve. Can you explain that?

Guest: Since they started the so-called Quantitative Easing. I think roughly
since the Lehman collapse in September of 2008; I think it's about 75% of
the total is being purchased by the Fed.

Russ: So, can you explain to me what that means and what it portends for the

Guest: Well, let's just start with Lehman's collapse in September 2008.
That's a convenient date. Since that point in time, the Federal Reserve's
balance sheet has increased roughly by three and a half times. So that means
they are buying a lot of these bonds. And that's where they go, on the asset
side of the balance sheet. Now that means that high-powered money, or what I
call state money--the amount of money produced by the state--has more or
less tripled. It's exploded. And this has many people concerned; and they
get excited and say we are going to have hyperinflation tomorrow. That's a
hyperinflation nexus. The Fed's buying all these bonds; their balance sheet
is exploding; high powered money is increased very rapidly. And people
conclude that it's going to be like Yugoslavia, or the Weimar Republic, or
something like that. Now, it has meant that state money has increased from
about 6.5% of the total money supply, when you measure the money supply
properly with a broad measure, like M3--so we went from state money being at
about 6.5% at the time Lehman collapsed, until now it's about 15%. So,
you've more than doubled the size of state money. But the problem is: I said
15%; now state money is 15% of the total amount of the money supply--meaning
that state money is peanuts. What really is important is bank money--and
bank money is created by the commercial banking system and shadow banking
system, and that's what really counts. So, in a way we have had the
following scenario develop after Lehman: We've had ultra-loose monetary
policy with regard to state money and the Federal Reserve. But with the
financial regulation, that it was legislated with Dodd-Frank, and also with
what is called the Basel capital requirements, and specifically Basel III,
which is being imposed on banks--to increase the capital-asset ratios of the
banks. These two things--financial regulation and Basel--have in effect
imposed ultra-tight monetary policy on the banking system and bank money.
So, as a result of the two, we've had the total amount of the money supply
actually being very anemic, not growing very much at all. And in fact, if
you look at a trend line since 2009 and look at the endpoint today of the
trend line as you are going left to right, that point is about 7.5% higher
than the actual level of the money supply that we have. So, you could argue
that relative to trend we've got a deficiency of about 7.5% in broad money.
And the reason why is that the dominating feature has been the reregulation
of banks and the tight monetary policy imposed on bank money. Which accounts
for 85% of the total amount of money in the economy. Russ: So, that's
consistent with Scott Sumner's view, who argues that monetary policy has
been very tight, rather than loose. Everyone looks at the so-called
aggressive policy of the Fed. But my question then is: You are saying that
banks have been highly regulated and you can also argue that the economic
system is not very optimistic right now; it's kind of uncertain. But banks
have huge excess reserves. So, you are saying they are constrained. But it
appears they are very unconstrained. ...

...So, here's what we've had since Lehman. Loans to commercial enterprises
have gone down in the United States. Mortgages have gone down in the United
States. Interbank lending has essentially disappeared--which is almost the
lifeblood of the banking system, the interbank....

Russ: So, with the benefit of hindsight, what should he have done? Given
that he's let M3 or M4, these broad measures of liquidity in the economy
shrink? That's had a real impact on the economy; it's slowed the recovery;
it's made it anemic. What could he or should he have done? A lot of people
have faulted him for being way too aggressive. You are saying he wasn't
aggressive enough. How could he have implemented a policy to make up for the
shrinkage in bank money?

Guest: Well, he could have come out against the Dodd-Frank financial
legislation. That would have been maybe a politically dangerous thing to do,
going head to head with Congress. But the other thing he could have done--

Russ: And you mention--

Guest: He could have put a freeze on Basel. Basel has a direct input into
the capital requirements of the banks. But you see that, the reason the
Americans love Basel III is that the European banks that the American banks
are competing with in the international market, they are relatively
undercapitalized compared to the American banks. So, basically, by imposing
Basel III, you are mandating--you have a government banks that says that the
European banks have to shrink faster than the American ones.


Link to interview, MP3 podcast and transcript:

Also mentioned: Prof. William A. Barnett's Divisa M4:

Advances in Monetary and Financial Measurement

Divisia Monetary Data for the United States:
rigorously founded in economic aggregation and index-number theory.

Mentioned in this article:

Malfeasant Central Bankers, Again
By Steve H. Hanke

Mon, 02/25/2013 - 09:43 | 3273626 proLiberty
proLiberty's picture


January 2013



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