Sprott: Do Western Central Banks Have Any Gold Left? Part II
By: Eric Sprott & Shree Kargutkar of Sprott Asset Management
Do Western Central Banks Have Any Gold Left? Part II (part 1 here)
The past few months have been difficult for the gold investor as selling pressure in the gold futures market has set a decidedly negative direction for the price of the yellow metal. As fundamental investors, we always pay special attention to the supply and demand dynamics of gold and, recently, we have found it very difficult to reconcile lower prices with continued strong demand for physical gold.
While the supply of gold has remained largely static, we have seen a steady increase in demand for the yellow metal. India and China have emerged as strong buyers, consuming over half of the mine supply in recent years. Central banks have switched from being sellers of gold to being net buyers, with their gold purchases in 2012 increasing by 17% to almost 535 tonnes. Exchange traded products (ETPs) around the world have continued to add to their gold hoards, as have institutions and private investors. Furthermore, central banks, such as South Korea and Russia, have added to their bullion reserves early in 2013, which points to sustained strength in demand. These facts are important because, over the past decade, the annual supply of gold has stayed flat at approximately 4,000 tonnes.
Much ado has been made about the recent sell-off in the yellow metal forcing certain ETPs to liquidate, adding a supply of gold into the market in the process. Our work reveals that the previous ETP sell-offs, (which occurred in January 2011, December 2011, May 2012 and July 2012) have all coincided with gold finding strong price support and rallying higher.
In our September 2012 MAAG, titled, “Do Western Central Banks Have Any Gold Left???”, we reconciled the annual change in demand for gold between 2000 and 2012 to be almost 2,300 tonnes. We went on to hypothesize that given the massive change in demand, the only suppliers large enough to fill the gap between supply and demand were the Central Banks. Now, our long search for the “smoking gun” to prove our hypothesis appears to have finally materialized.
Every month, the US Census Bureau releases the FT900 document, which outlines US International Trade Data. Going through this document, we were intrigued to see that in December 2012 the US exported over $4B worth of gold and imported around $1.5B worth of gold, representing a net export of $2.5B or almost 50 tonnes1. This surprising number led us to look at the previous releases of US International Trade Data which go as far back as 1991 – what we found was truly shocking. Not only has the US been consistently exporting large quantities of gold on a net basis, the amount of gold the US has been exporting is above and beyond what the US should be capable of exporting.
The gold market is fairly simple to understand from a supply and demand perspective. Since you cannot fabricate gold out of thin air, supply comes from new mine production, scrap gold recycling and investor disposition of bullion. Demand comes from many sources including investment demand, electronics, dental and industrial uses to name a few. There can be short-term aberrations between supply and demand where the market can be oversupplied, or demand can outstrip supply, however, over a longer period, supply should equal demand with the price acting as the equalizer. Under this assumption, the amount of gold that the US is exporting should equate to the amount of gold that the US is not consuming over a long enough time frame.
Table 1 lays out our framework for analyzing the US gold supply and demand.
Table 1
For our analysis of supply and demand, we have very robust statistics as far as mine production, import-export data, coin sales and ETP demand from GFMS2, the US Census Bureau3, the US Mint4 and Bloomberg5, respectively. We have good data on gold recycling, jewelry sales and gold use in electronics and industrial applications from the CPM Group6.
Table 2 lays out our analysis for 2012 using the supply and demand framework.
Table 2
We used this framework to analyze supply and demand in the US going all the way back to 1991, which is as far back as the FT900 documents go. Over the span of 22 years, the total amount of gold that the US has exported – above and beyond its supply capability – is almost 4,500 tonnes! A truly stunning figure. (See Table 3).
TABLE 3: US GOLD MARKET, CUMULATIVE SUPPLY DEMAND 1991-2012 (IN TONNES)
Admittedly there is an unknown in our analysis, that being gold bullion acquisition and disposition by private investors. However, strong demand in ETPs such as GLD and PHYS and demand for gold coins provide strong evidence that the private investor has been a net buyer over the years. The inclusion of the private investor on the demand side would in fact skew the ‘gap’ of 4,500 tonnes higher to a figure that would lie somewhere between 4,500 tonnes and 11,200 tonnes, which represents the gross exports out of the US. The only US seller that would be capable of supplying such an astonishing amount of gold is the US Government, with a reported gold holding of 8,300 tonnes. The US Government gold holdings have not been audited or verified in more than four decades. The US trade data defines the export of nonmonetary gold as a sale of gold from a private seller within the US to an official agency. In September 2012, we espoused that the Western Central Banks have been surreptitiously selling/ leasing their gold through private channels in an effort to increase the available supply and in turn suppress prices. This new analysis using official US agency numbers seems to provide the strongest validation of our hypothesis to date. It is worth noting that our data only covers two decades and that the export ‘gap’ could in fact be significantly larger if earlier numbers were included or the real private investor demand for gold was known.
We are currently in an environment where policy makers are intent on devaluing their currencies in an effort to create growth. Real rates continue to stay negative in most of the developed world. Every marginal dollar of debt that is created is producing lower and lower amounts of growth. In a world overwhelmed by mountains of debt and economic growth which is sub-par at best, precious metals and real assets can act as insurance against the stupidity of policy makers. The evidence pointing towards the suppression of the gold price is becoming increasingly apparent. Don’t be the last person to figure this out! The current sell-off in gold should be viewed not with extreme trepidation but as an unbelievable opportunity to buy the metal at an artificially low value.
| 1 | Import Export Stats – US Census Foreign trade: http://www.census.gov/foreign-trade/index.html |
| 2 | GFMS – http://www.gfms.co.uk/ |
| 3 | Import Export Stats – US Census Foreign trade: http://www.census.gov/foreign-trade/index.html |
| 4 | Coin sales from US Mint: http://www.usmint.gov/ |
| 5 | Bloomberg |
| 6 | Jewelry, recycling, dental, electronics and industrial from CPM Gold Yearbook |
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Figures don't lie, but liars figure.
Just wait 'till the SHTF.
The only thing keeping prices down is plummeting money velocity...Yes, everything BUT velocity has recovered.
Strange times?
http://www.planbeconomics.com/2013/03/is-money-velocity-recovery-achille...
We have this huge pile of dry leaves in our backyard. It just take a fool with a match and it all goes up in flames.
screw eric sprott,,,,,,i'm so tired of all these experts opinions its civil war in the west without any gold left
that's cool, I hear war makes economies recover...
Its possible that the Krug-Man has hit a record for the most UP or DOWN arrows
>>>>>
http://www.zerohedge.com/news/2013-03-19/nigel-farage-message-europeans-...
OMG. Take a look at his demand figures for 2012. GLD inventory is included. LOOOLLLLLLLL GLD is loco London.
FYI see here
http://twitter.com/VictorCleaner/status/314137843108827136
Victor
So who is receiving the gold?
Asians? Swiss castles?
No, I have seen upward of 350 down arrows, but I don't remember which troll. It was a year or so ago and the trolls flush faster than turds at a frat party.
The U.S. gvt has an amusingly low amt of physcial gold holdings, but the BIS could fill the bill, if there truly was a need.
We'd love to show you our gold in Fort Knox but the sequester of 1953 has made it economically unfeasible.
http://www.silverdoctors.com/fomc-minutes-answer-eric-sprotts-questions-...
Like you've ever told the truth on anything? LOL. Get Fucked.
REspct mah GLDs 'n' ETFs, they're like totally legit 'n' backed up!
Eric Sprott's opinion is backed up with numbers, in this very article. I find those numbers very compelling, relevant and thought provoking. Your opinion, on the other hand, I find is backed by your emotions only and very much irrelevant. I think I will stick with Eric on this one.
JPMorgan And The Andrew Maguire Hit & Run Mystery
This certainly has the appearance of a professional hit on Andrew Maguire and his wife. It occurred just days after Maguire's name was revealed in congressional testimony, and the identity of the assailant still has not been released by London police.
Maguire now believes the accident was an attempt on his life.
Whistleblower In JPM Silver Scandal Injured In Mysterious Hit & RunI see Spain is now talking about taxing certain deposits. Is that enough of fool with a match?
its obviously all planned at this point, at least their gold is marked to market and the united states is not
Bank runs have a way of increasing money velocity right quick.
A bank runuually results in banks staying closed or limiting withdrawls in which case people jealously guard whatever physical cash they may have. The result is in fact reduced velocity.
Yes you are right; and that, for example Argentina in the early 90s, is followed by velocity going up. That is at least in part what makes it so destructive, that the sheep run to hide their precious only to be flushed out in the opposite direction. The issue is whether the hole in oligarch balance sheets is filled by confiscation, printing or some combination.
When in doubt, step back...Let's step way back...to look at the "universal" view...
(1) water deposit gold in volcanic regions
http://zen-haven.com/earthquakes-turn-water-into-gold/
and,
(2) Gigantic flood carved up Mars forming channels underneath volcanic rocks.
http://www.businessinsider.com/underground-flood-channels-on-mars-2013-3
Put one-and-two together...we humans should go gold-digging(really?) in Marte Vallis.
b...b...but what will the Martians say? Well, if we are'nt allowed to land there,
perhaps they (Martians) can come to the rescue (ha!)
Strange time (we find these out) indeed!
Velocity is easily explained. It's called a liquidity trap. Much of the money being creaated is simply serving to pay interest. The real question is, "who is all that interest going to?"
His unknown is the private individual and a big percentage of this gold undoubtedly lives there.
Which is why outlawing and confiscation will be the order of the day.
.
Fixed it for you.
imho this is looking at it from the wrong perspective.
the gold hasn't left. it's still in vaults in NYC, London.
what this means is that gold has shifted from public reserves into private hands.
If Mr Sprott sees a drone flying over Toronto, he better run for cover.
we all know the answer to that, more than zero but much less than admitted too otherwise it would not take Germany 7 years to get back what is relatively a small amount of gold. That alone answers the question. All the miners need do is withhold delivery into COMEX and LBMA and holdout for higher prices and the rigged game ends on the spot. Why Execs at these companies can't see this is mindblowing, unless they're so incompetent not to see the market rigging or they're in on it. .
SWF must be going directly to the miners and paying up if delivery is what they are after. A transparent market does not seem to be in anyone's interest, China, Russia, Arab countries want to secretly accumulate without skyrocketing prices, Western countries want to delay and paper over the real price while going after Mali, Libya, Iran gold and energy.
why do the miners seem to help in the suppression of their own stock prices? just how corrupt is this system? pretty dang it would seem.
Fear of nationalization
Naw. They are intimidated by the CBs. It's historical and cultural. Tread carefully around those who fix the price of your product.
Mining company execs are all craven cowards, Quislings and/or active collaborators in the gold price suppression, as I know of not ONE who will publicly speak out against it, much less take any action against it. The conspicuous silence on this topic at the PDAC and other major mining conventions, and in the major mining journals such as the Northern Miner, is in and of itself very telling.
Give Keith some credit.
http://news.silverseek.com/SilverSeek/1321980348.php
Yes, I have read Mr. Neumeyer's interview before, and while he does mention overleverage in the silver market, and the fact that the price of silver is set more by financial machinations rather than supply and demand, he repeatedly and skillfully skirts the whole issue of the purposeful and government-orchestrated suppression of the price of silver (and gold) --- as does every other North American mining executive.
I do not include Jim Sinclair here, as he is not the executive of an operating, producing mining company (Tanzanian Royalty being a 'junior miner', i.e., an exploration company), nor one which is active in North America, which was my initial working assumption.
Jim Sinclair. Now you know one.
Hey, it takes awhile to dip all those bars of Tungsten into the gold....
Stuart... You bet some of the biggest gold producers cough,barrick,cough...is in on the gold price supression...
https://www.youtube.com/watch?feature=player_embedded&v=CCLu5hpYYWI
This deserves an article on itself.
China buys 15 to 18 tons of gold per week, from three bullion banks. Ignore this at your own risk.
that's a lot of tungsten.
it is said that the apple doesn't fall far from the tree. this i would say parallels the action of it's ancestors, where it is so very,... very hard to change old genealogical, hereditary and inherent habits? straight from the Torah, and validated by the Tulmud!?
http://en.wikipedia.org/wiki/Solomon#Building_and_other_works
Now,... who's really hoarding all the Gold?
can anyone say... 'manipulation for dummies'
This is why gold confiscation is coming back. Those vaults will be made whole again, and on the backs of coin and bullion owners.
It would be a good idea to diversify into other metals as well.
are the lines out the door at the jewelry store? nein. is it because there is a lack of gold? nein. so what explains peoples lack of interest in gold? "cuz their paying me 100,000 grand to start to work the jack up rigs in North Dakota." http://www.youtube.com/watch?v=NwzaxUF0k18
Gold confiscation??? Less than 1% of the people I know have any gold other than some minor amounts of 14k jewelry. So the Gov is gonna come confiscate PM's from 1in 100? I highly doubt they'll waste their time.
Besides, if the USGov wants their gold back, they're looking on the wrong continent.
They'll have to confiscate all the lead first and I have a feeling certain folk will give that to em at a high rate of speed. Just sayin. Personally, I am quite afraid of heavy metals and seek to avoid them as per EPA guidelines.
The safest metals to own may well be palladium and rare earths
There is not a lot of surplus supply in platinum and palladium and mining is not cost effective at current price levels.
I think there is value to be had here.
You have a point.
If the Fed gets close to running out of physical to sell/lease into the market, then trust in the entire financial system would be at risk of collapsing.
Would that be enough of a reason to declare an emergency and issue several executive orders....with the aim of converting the fFed's paper gold receivables back into physical?
I think so.
But miners would be an easier, more concentrated target. See Hugh Hendry and his thesis on this (if the POG were to surge, miners could get nationalized).
At the same time, why not make physical gold (bullion, not jewelry) illegal too? It's happened before and with today's tracking systems, the government would have very little difficulty identifying anyone who's BOUGHT gold, from dealers (in person or via the internet), over the last say 20 years. Sure, it would be difficult for the Feds to get their hands on all of it, but I wouldn't be surprised if they tried.....all in the name of national security.
PS. For the record, I've SOLD all my gold to private investors, via the internet, in exchange for cash. Unfortunately, I don't have any record of these SALES.