The Daily Market Report: Is There 1,747 Tonnes of Gold Missing From London Vaults?
29-Sep (USAGOLD) — Gold is consolidating near unchanged, after recovering from an overseas downticks. Renewed uncertainty surrounding the Fed’s policy intentions for the remainder of the year are likely to be the market’s focus into this Friday’s jobs report.
Given the current rangebound nature of the market, and my ad nauseam coverage of the ebb and flow of Fed rate hike expectations, let’s use the DMR today to examine some of the yeoman research work done recently in the area of gold supply and demand:
First, Ronan Manly of BullionStar wrote a piece early in the month entitled: How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults in which he reports evidence of a rather significant outflow of good deliver bars from London.
According to Manly, as recently as April of 2014, the LBMA’s vaulting page reported “In total there is approximately 9,000 tonnes of gold held in London vaults, of which about two-thirds is stored in the Bank of England.” That’s a figure that the LBMA has apparently been using since 2011.
Earlier this year, the same page reported a significantly lower figure: “In total it is estimated that there are approximately 7,500 tonnes of gold held in London vaults, of which about three-quarters is stored in the Bank of England.”
In an LBMA presentation by CEO Ruth Crowell just 3-months ago, one of the slides stated that “There are ~500,000 bars in the London vaults, worth a total of ~US$237 billion.” That is the equivalent of 6,250 tonnes gold.
In other words, 2,750 tonnes of gold — nearly a third of the total reported in April 2014 — may have been removed from London vaults over the course of the last 4-year. Manly details some caveats in his blog post, but that is pretty startling outflow even if the reality isn’t exactly spot-on.
In a follow-on post, Manly aggregates as much information as he could gather about which central banks are housing their gold in London: Central bank gold at the Bank of England.
However, the real burning question of course is; where did all that gold go? If you’re a regular visitor to this site, or follow the gold market even casually, you probably have a pretty good guess . . .
The flow of physical gold from weak hands in the west to strong hands in the east has been well documented in recent years. One of the more dogged investigators of this ongoing phenomenon is Manly’s colleague Koos Jansen.
From Koos’ post on 25-Sep entitled The London Float And PBOC Gold Purchases:
We don’t know exactly when in 2011 the LBMA measured there were 9,000 tonnes of gold in London, but it doesn’t really matter. In the chart above we can see that the most significant movements since 2011 have taken place in 2012 and 2013. If we measure the flow of gold from the UK between 2012 and 2014, the net outflow is 970 tonnes. So it’s not that important when in 2011 the 9,000 tonnes were counted by the LBMA. What is important is that since 2011 not more than 997 tonnes of non-monetary gold has left the UK, according to official trade statistics.
Nick Laird and I noticed that although the total amount of physical gold in London fell roughly 2,744 tonnes (9,000 – 6,256) over four years (graph 1), only 997 tonnes were net exported as non-monetary gold (graph 4). This makes me wonder where the residual 1,747 tonnes (2,744 – 997) went. Possibly, this gold has been monetized in the UK and covertly shipped to a central bank in Asia, for example China. I don’t have rock hard evidence, but it fits right into the wider analyses.
Furthermore, from 2006 to 2011, the UK was a net importer every year. If the 9,000 tonnes estimate by the LBMA was hopelessly outdated, say, it was from 2008, this would increase the “missing gold” even more (as net export over the years would have been smaller than 997 tonnes).
What stands out for now is, (i) the LBMA has stated there were 9,000 tonnes of physical gold in London in 2011 and (ii) gold trade provided by HMRC reflects all physical movement of non-monetary gold in and out of the UK. Both these handles have nothing to do with complicated rules on changes in ownership of gold in London (that I’m aware of). Therefor we must conclude 2,744 tonnes left the UK since 2011, but only 997 tonnes was seen leaving as non-monetary gold. Where did the residual 1,747 tonnes go?
The supposition is that those 1,747 tonnes went to the People’s Bank of China. “Did the PBOC covertly buy 1,747 tonnes of gold in London?”, asks Jansen.
You may recall that this past July, China reported that it increased its gold reserves by 604 tonnes to 1,658 tonnes. The 57% increase was viewed as wildly disappointing, leading to speculation that the figure was grossly understated.
Many expected that Chinese gold reserves had at least doubled in the 6-years since they last reported. However, Bloomberg Intelligence estimated that China had tripled its gold reserves to 3,510 tonnes. Add the 1,747 tonnes missing from London to the most recent 1,658 “official” figure from China and you get to 3,405 tonnes. Interesting . . .
