FRIDAY, MAY 17, 2013
Eric Sprott and David Franklin
Where is the gold coming from?
We have tried to balance supply and demand figures in the gold market to answer a 15 year old question - “where is the supply of gold coming from?” In 1998, Frank Veneroso first suggested that it was the Western Central Banks that were supplying the market and we’ve been looking for a smoking gun ever since.
We have published our research several times, but none has got more attention amongst gold-watchers than our two pieces on the activities of Western Central Banks. In the Markets at a Glance entitled “Do Western Central Banks Have Any Gold Left Part II” we surmised that more than 4,500 tonnes of gold was exported by the United States between 1991 and 2012. Further, we postulated that it must have come from the US Government as they would be the only viable provider of metal in this quantity. There is no other seller in the market that could explain the discrepancy in these import/export figures. Let’s review the updated figures and then examine some expert opinions.
On May 2nd, 2013 the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, released their monthly update for the U.S. International Trade in Goods and Services. This report, which is issued through the Department of Commerce shows that from January to March 2013 the US was again a net exporter of gold.1 It shows $11.1 billion in exports of non-monetary gold and $4.1 billion in imports of the same, for a net export of $7 billion USD in non-monetary gold in the first three months of 2013. Using an average price of gold over this time period of $1,631 this equates to another 121 tonnes of gold that left the United States. Annualised, this first quarter figure would equate to $28 billion or approximately 486 tonnes of gold. Again it must be conceded that the only plausible seller of that much bullion is the US Government. We look forward to April’s figures as they may provide a new perspective on these gold flows given the extreme price drop gold experienced.
Last week, Chris Martenson, a favorite gold watcher of ours’, tried to answer some of these questions. In a piece entitled “Why There May Be a Lot Less Gold than We Realize” published via Casey Research2 he considers some of the implications of research showing a 4,500 tonne gold deficit in U.S. public accounts. As Mr. Martenson points out, both the Fed and the Treasury show this reserve amount of gold on their balance sheets. It’s an accounting mystery how both the Fed and the Treasury can claim ownership of the same 261 million ounces of gold. It has been suggested that there is an offsetting entry that balances the books, but we haven’t been able to find it yet. If 4,500 tonnes of gold was leased out by the Federal Reserve it could not have been done without the Federal Reserve leasing out gold belonging to the U.S. treasury or belonging to other countries, he concludes. “Where there's smoke there's fire, and there is a lot of smoke in the bullion world right now. I am more certain than ever that holding physical bullion is a must-do for everyone who wishes to preserve their purchasing power.”
Others simply suggest the data published by the US Government is faulty. In fact it appears that the import/export data from the US confounds the Federal Reserve itself. An exchange between Alan Greenspan and members of the Federal Reserve on December 22nd, 1992, outline his confusion regarding the ‘accounting path’ that imports and exports of gold travel from the Federal Reserve. Fed minutes reveal that Mr. Greenspan struggled to understand this ‘gold export’ phenomenon, stating: “Did I hear you correctly when you said that the gold exports in October appear to have come from the coffers of the Federal Reserve Bank of New York? Has anyone looked lately?” Given the implications of the Fed leasing out gold that it owns, or is held in trust for other countries, Mr. Greenspan asks the question we all want answered; ‘Has anyone looked lately?’. A full audit of the Federal Reserve’s holdings might be the only proof that will once and for all answer the question, ‘Do Western Central Banks have any gold left?’.
As we go to print, this article came across our desk highlighting a one billion dollar shipment of gold from the USA to South Africa. Why would one of the largest gold producing countries need 20 tonnes of gold? Again we ask, where is this gold coming from?3
1 U.S. International Trade in Goods and Services March 2013. Retrieved on May 17, 2013 from: http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf, pg19
2 Why There May Be a Lot Less Gold than We Realize. Retrieved on May 17, 2013 from: http://www.caseyresearch.com/articles/why-there-may-be-a-lot-less-gold-than-we-realize
3 $1 billion of gold has been shipped from New York to South Africa this year. Retrieved on May 17, 2013 fom: http://qz.com/83396/1-billion-of-gold-has-been-shipped-from-new-york-to-south-africa-this-year/
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