In Koos Jansen’s latest
post on the Turkish gold market, he has an interesting chart that shows
that while the World Gold Council (WGC) has been reporting that the gold
reserves of the Central Bank of the Republic of Turkey (CBRT) have increased
from 116 tonnes to over 500 tonnes since late 2011, in actual fact CBRT has
not bought any gold over that time.
It is a
result of CBRT allowing Turkish banks to deposit gold with the central bank
to meet their reserve requirements. Legally such gold is then owned by CBRT
(as the Turkish banks are only holding a claim on their central bank for
gold) so technically it is correct for the WGC to show it as reserves.
However, I note that CBRT told Koos that gold so deposited “will show up in Central Bank balance … as “liability”
to the bank which brought this gold”, so arguably the WGC
should also take the liability side of a central bank’s balance sheet into
account and only show the net
gold position.
In
effect what the WGC is doing is just looking at one side, the asset side. My
problem with this is that most people are not aware of this CBRT policy and
use the WGC gold reserves figures, and changes in them, as a way of gauging
central bank demand for gold. Clearly in the case of Turkey the WGC figures
are misleading to the majority of users and overstate central bank demand. I
think it would be better for WGC to adjust the IMF figures to reflect the
actual net gold owned by central banks and report any increases in gold held
by a central bank against gold debts to its banks as a separate line item.
It is
not as if the WGC is not aware of this issue, as on their quarterly reserves
changes spreadsheet
they say that “this table aims to show
major changes in reported central bank reserves and the reason for the
changes, which are not always the results of sales or purchases”
and proceed to note the Turkish policy. Additionally, the do not include
changes in CBRT’s reserves as central bank purchases in their commentary in
their quarterly demand trends report.
You may
then wonder if the WGC is doing this deliberately as it overstates central
bank demand, helping their pro-gold agenda. The fact that they are more than
willing to have the chart on this page default
to include Turkey's inflated figures would support that view.
However
I think it is more mundane than that. In the notes to their spreadsheet of
central bank reserves it says that the data is “taken from the International Monetary Fund's
International Financial Statistics (IFS) and other sources where applicable.”
It is not like they are reviewing individual central bank reports, so it is
just a case of not being bothered to review individual central bank annual
reports and policies and make any appropriate adjustments (and its not as if
they don’t make any adjustments, because in the notes they say that “where the WGC knows of movements that are not
reported to the IMF or misprints, changes have been made”).
Whatever
the reason, given the inconsistency in the way central banks report gold
reserves, leases and swaps (see here)
and the resulting potential for double counting, the WGC should not add to
the confusion by failing to make simple adjustments. Consistency in the way
they report data is essential to avoid the potential for misinterpretation on
a topic as important as central bank demand for gold.
