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Earlier this month
Eric Sprott circulated a paper, co-authored by him, which concluded that Western central banks have
considerably less physical gold than they claim. It shows that since the year 2000 there has been a net increase
in identifiable annual demand
of 2,268 tonnes, and concludes that
some supply, apart from mine output from the “free” world, must come from Western central banks
– because there can be no other
source.
This supply amounts to price suppression in
the name of demonetising
gold. Therefore, while
minimal investment interest
is shown in precious metals in the West,
central bank selling and
net jewellery liquidation (currently
running at about 1,000 tonnes annually)
are effectively supplying
Asia with gold at artificially low prices in what amounts to a transfer of wealth.
We do not know precisely the extent to which this has happened, because available statistics only tell part of
the story. The World Gold Council (WGC) has demand
data going back only to
1992, and some of this is defined as actually measured (e.g. import statistics, mint and hallmarking data); otherwise it is only “indicated” on a trade-sample
basis. Importantly, no statistics
can capture change of ownership
for vaulted gold. But we can get a
feel for gold ownership
shifts by recounting events
since the US dollar finally
dropped all links with
gold in 1971.
In 1971 bullion investment was still effectively banned in the US (except for foreign coins), and investment
in the UK and a number of other
countries was also more
or less coins only. It is estimated that all existing coins today amount to about 3,500
tonnes.
The oil crisis of the 1970s led to substantial bullion-buying by
the enriched Middle Eastern
states. This continued through
the 1980s and into the 1990s. Meanwhile
conservative Swiss investment
managers, who collectively
were the largest holders of bullion, were replaced by a new generation of managers who
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