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When I wrote my article Does
Mining Matter?, I would have liked to include some statistics on the
total volume of gold trade but I did not know whether they existed or where
to find them.
Fortunately, mine exploration analyst Brent Cook has posted an article Confusion
will be This Market's Epitaph providing the statistics that I would have
liked to have used. Cook's article links to the London Bullion Market Association
(LBMA)'s web site containing statistics on total gold clearing.
According to Cook,
According to Paul van Eeden, who has looked at
the LBMA transfers in some detail, the LBMA clearing statistics are net
statistics. That means it is only the net transfer between LBMA clearing
members and not the total amount of gold traded. The actual amount of gold
traded could be four to six times larger than the net clearing amount. In
that case, Barrick's purchases [of 2.4 Moz] would represent only about 1% of the physical gold
traded during July and August.
If 2.4M oz accounts for 1% of total activity over two months, that
implies a total volume of 240Moz over two months. Annualized, that gives 1.4 Bn oz of annual gold volume. I do not know what fraction
of the world's bullion trade goes through the LBMA but I do know that there
are other markets in New York, Zürich, Hong Kong, and the middle East.
But the LBMA's numbers are enough to make my point.
While researching the article I encountered objections along the lines
that there is no gold for sale at or near the market price other than mine
supply. If this were true, then the impact of mine sales would be greater
than if there were many other sellers near the market.
In my article The
Myth of the Gold Supply Deficit, I cite the following statistics from the
World Gold Council:
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Total above-ground gold supply:
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155,000 tonnes/5 billion ounces
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Annual gold mine production:
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2500 tonnes/80Moz
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This gives us a total LBMA trading volume of a bit less than 30% of the
total gold trading volume (also known as the float). Counting other
exchanges and small purchases (from coin dealers) would make this number
higher. Mine supply contributes about 6% of total LBMA volume.
Conclusion: the gold market is a very liquid and deep market with plenty
of supply available at or near the market prices. Many buyers and sellers are
close to the margin. For those who accept my analysis of price formation but
believe that the impact of the gold miner as the marginal seller is
nonetheless quite significant, these statistics suggest otherwise.
Robert Blumen
Also
by Robert Blumen
Robert Blumen is an independent software
developer based in San Francisco, California
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