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Noticing an increase in investigative stories concerning manipulation of gold prices with paper contracts on the world's futures
exchanges that sound plausible, this blogger took
a closer look at the European Central Bank's (ECB) gold data, only to arrive
at a conclusion that feeds these suspicions.
With
the extended Central Bank Gold Sales Agreement (CBGSA), annual gold sales
have been limited to 500 tons per year from 1999 to 2009. This ceiling has been lowered to 400 tons per year last
September.
ECB
data show that slowing central bank sales undershot this ceiling by a wide
margin in the last 10 years. Overall Eurozone central banks sold a mere 55.6
million troy ounces of gold or 1,729 metric tons since December 1999 while
the CBGSA would have allowed sales of 5,000 tons in this period.
click to enlarge
GRAPH: Are
central bankers good asset managers? The Eurozone management of central banks
gold holdings raise doubts. Why did central bankers continuously sell the
best performing asset of the past 4 decades? Although Eurozone central banks
sold 55 million troy ounces or 1,729 metric tons - equalling 13.8% of total
holdings - of gold in the last 10 years, the Eurozone's gold stash rose 130%
in Euro terms. Show me another market sector with this performance. Data: ECB
I
recommend to download this simple spreadsheet (.xlsx) with ECB gold data
since December 1999 in order to better comprehend my
reasoning. These figures by country show that Eurozone central banks stopped
selling gold in 2007 and make one wonder where the 2,000 tons gobbled up by
Indian investors since then came from. Indians are the single biggest group
of bullion buyers and has seen annual demand rise from 200 tons to 500 tons
in the last decade.
In
2008 world gold production was down 13% to 2,260 tons from its 2001
peak of 2,600 tons, date from the US Geological Survey
show.
Chinese gold production rose by 11.34% in 2009, to
313.98 tonnes, according to statistics released by the China Gold
Association. The largest gold producer in the world hoards most of its
domestically mined gold.
Putting
this data in context with markedly higher gold price volatility since 2007
raises the question whether central bank gold sales result in anything other
than short term price changes. In stark contrast to normal market behaviour,
where the seller wants to get the highest price possible, central banks
certainly left a lot of money on the table by pre-announcing their sales, re-announcing
them while at it and telling it the public a third time after the fact.
One is
also left in the dark about gold leasing or swaps. Both the ECB and its
members only publish raw data, omitting any information that could shine a
light on continuing allegations that central banks sit on far less bullion than the
official figure of some 30,000 tons (pdf).
GRAPH: ECB
figures show that Eurozone central banks have done a terrible job concerning
capital preservation in the past 10 years, selling 13.8% of the best
performing asset (GOLD, which rose 240% in Euro units in the same period.)
Note that Eurozone central banks preserve remaining gold hoards since 2007.
<
Following the
recent discussions around GATA's appearance at a CFTC hearing and the revelations of former gold trader Andrew
Maguire (+ more links), whose precise forecasts about a
takedown of the price of gold after NFP figures in February were ignored by
the CFTC I am led to believe that a massive squaring of paper gold positions
and the resulting short squeeze will lead to a melt-up in the yellow metal at
a not too distant point in the future.
As after every
bubble based on fiat money and exploding debts gold will be en vogue again.
It was never different in the last 6,000 years. Euro, dollar and Sterling are
all doomed to go the same ways as all fiat currencies in the last 300 years.
There is no such thing as floating currencies. They are only sinking at different speeds vs.
gold.
Toni Straka
Editor, the Prudent Investor
Toni Straka is an
INDEPENDENT Certified Financial Analyst (OeVFA, EFFAS) who worked as a
financial journalist for 15+ years and now evaluates global market trends.
Analyzing financial and political news permanently he wants to share his
insight with those who understand that we are in an era of global
redistribution of wealth. The US-European centric approach does not work
anymore. Five billion people in the developing countries now demand their
fair share of the world's resources.
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