Posted on 21 March 2013
New research from Sprott Asset Management has revealed that huge
sales of gold by the Federal Reserve over the past two decades have kept
the gold price below where it ought to be if market forces were setting
the price. It’s a red letter day for gold price conspiracy theorists.
Sprott researchers looked back though US trade data and found that the US has been consistently exporting large amounts of gold, and that ‘the amount of gold the US has been exporting is above and beyond what the US should be capable of exporting…
‘In December 2012 the US exported over $4 billion worth of gold and imported around $1.5 billion worth of gold, representing a net export of $2.5 billion or almost 50 tonnes.’ Tracing the data back Sprott discovered a similar pattern of net gold exports going back 21 years.
Supply surprise
It is Sprott’s view that the sale of this amount of gold explains why gold prices have not gone much higher given the higher levels of demand so evident in the global economy. In short the supply of gold to satisfy this demand has to be coming from somewhere or the price would be shooting up. The study points out…
‘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 per cent to almost 535 tonnes. Exchange traded products 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.’
If the supply of gold was really static then the price ought to be much higher in the face of all this increased demand. Sprott thinks it has discovered the missing gold supply in these massive net sales from the US which can only have come from one source, the US Federal Reserve.
Why would the Fed be manipulating the gold price down like this? For one thing it helps to validate low inflation figures and keep interest rates down. For another it directs investment into productive assets and away from precious metals sat in vaults.
Running out?
But after 21 years of selling, how much gold would the Fed have left? You cannot sell your gold indefinitely. The Sprott study hazards an estimate:
‘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.’
On that reckoning then the US Federal Reserve has sold somewhere between half and all of its gold! And if the Fed really is close to the bottom then there will come a point when it can no longer keep the gold price down.
Indeed, the Fed will need higher gold prices then to rebalance its own balance sheet or it will go bankrupt. How far are we away from that day? Only the Fed knows that.
ArabianMoney
New research from Sprott Asset Management has revealed that huge
sales of gold by the Federal Reserve over the past two decades have kept
the gold price below where it ought to be if market forces were setting
the price. It’s a red letter day for gold price conspiracy theorists.Sprott researchers looked back though US trade data and found that the US has been consistently exporting large amounts of gold, and that ‘the amount of gold the US has been exporting is above and beyond what the US should be capable of exporting…
‘In December 2012 the US exported over $4 billion worth of gold and imported around $1.5 billion worth of gold, representing a net export of $2.5 billion or almost 50 tonnes.’ Tracing the data back Sprott discovered a similar pattern of net gold exports going back 21 years.
Supply surprise
It is Sprott’s view that the sale of this amount of gold explains why gold prices have not gone much higher given the higher levels of demand so evident in the global economy. In short the supply of gold to satisfy this demand has to be coming from somewhere or the price would be shooting up. The study points out…
‘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 per cent to almost 535 tonnes. Exchange traded products 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.’
If the supply of gold was really static then the price ought to be much higher in the face of all this increased demand. Sprott thinks it has discovered the missing gold supply in these massive net sales from the US which can only have come from one source, the US Federal Reserve.
Why would the Fed be manipulating the gold price down like this? For one thing it helps to validate low inflation figures and keep interest rates down. For another it directs investment into productive assets and away from precious metals sat in vaults.
Running out?
But after 21 years of selling, how much gold would the Fed have left? You cannot sell your gold indefinitely. The Sprott study hazards an estimate:
‘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.’
On that reckoning then the US Federal Reserve has sold somewhere between half and all of its gold! And if the Fed really is close to the bottom then there will come a point when it can no longer keep the gold price down.
Indeed, the Fed will need higher gold prices then to rebalance its own balance sheet or it will go bankrupt. How far are we away from that day? Only the Fed knows that.
ArabianMoney
