Sprott: Do Central Banks Actually Have Any Gold Left?

Did you know that the central banks and governments of the U.S., U.K., Eurozone, Japan, Switzerland, and the International Monetary Fund (IMF) hold an estimated 23,349 tonnes of gold in their reserves? If you put a price tag on that gold, it'd be about $1.3 trillion in today's market. That's quite a bit of money...

But other than that tonnage estimate, very little else is actully known about the gold that supposedly makes up the gigantic pile of gold sitting in the vaults of the Western central banks. Sure, the bank are constantly assuring the public that the gold is there, but they sure aren't seizing the opportunity to provide any further details “beyond the arbitrary references in their various financial reserve reports,” according to billionaire investor Eric Sprott and legendary investor David Baker.

Perhaps a decade or so ago, you may not have cared what the central banks did with all that alleged gold, but times have certainly changed in light of the market collapse of 2008 and today's never-ending recession. Twelve years ago, you could purchase a gold bar fro just $225 per ounce. Back then, Western governments were lending out their gold – Canada outright sold theirs – in order to generate interest income for their holdings, and nobody cared.

Presently, it's pretty important for us to know exactly what the central banks are doing with their gold reserves and where those reserves are actually held. The countries I mentioned above are so far over-their-heads in debt, yet printing their respective currencies as if there were no negative consequences at all. They're like teenagers, being wild and reckless with their parents money. Unfortunately, that money is yours and mine. Meanwhile, the banks have set aside a whole lot of gold to collect dust in case this whole quantitative easing thing backfires.

But what about the rest of us? What about you and me? It's infuriating when you really think about it...

That's why investors like Sprott and Baker are staying ahead of the curve and keeping plenty of gold in their holdings as well. You can't trust the banks with your money anymore, so you might as well follow their example and stockpile gold while there's still some left.

But that's precisely what Sprott and Baker are worried about: the actual supply of gold. Take a look at their chart below to see how sharply gold demand has risen in the past ten years alone:

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.

From Sprott and Baker:

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.

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.

So where is all this alleged gold coming from? Sprott and Baker think the only possible candidate is the Western central banks.

Long story a little shorter: if the central banks are leasing out their physical reserves, they would not actually have to disclose details regarding the specific amounts of gold that leave their respective vaults. 

An ECB document states: “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.”

Sprott and Baker have conducted numerous reports and their analysis suggests that central banks have most likely been a massive unreported supplier of physical gold, meaning their gold reseserves are "negligible today."

They said:

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.

Taking their diligent analysis under careful consideration, you can bet they'll be taking great comfort in letting their own gold continue to collect dust in their vaults... many other investors are following their lead in response to these astounding findings.

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