Tekoa Da Silva: Eric, you comment often on the Western Central Banks, in terms of their disregard for gold as an asset class of importance, so I’d like to ask—do their actions speak otherwise or have they been letting out all their gold to Asian hands during this East/West physical transfer that we’ve seen over the last year?
Eric Sprott: Well, Tekoa I’ve written a number of articles where basically I ask the question, “Do the Western Central Banks have any gold left?” and I suspect that it is very, very limited these days and when I looked at what happened in the last decade, I can see that there was substantial net new demand for physical gold, over 2000 tons a year. You take it over a decade, and you’ve got 20,000 tons.
My understanding was they might have started the decade with 18,000 tons, but I was really debating whether they would have any left. As we’ve gotten into (particularly) this year and even last year with the Chinese coming into the market buying huge quantities of gold, it has become more and more apparent to me that the annual shortfall is probably even well beyond 2000 tons.
I speculated at the end of 2012 that the central banks probably had no gold left, and I’m not changing that speculation by the way. I think the raid on gold was orchestrated so that perhaps they could drain the ETFs, out of which they did get about 1000 tons, which helped them meet some of the demand exploding in China and many other places by the way.
So I think the central banks have been very active in the gold market. I believe in the GATA viewpoint, that the central banks have always wanted to orchestrate the price of gold. Particularly recently as the printing presses have gone crazy here and I know every one of your readers would know that zero interest rates and printing money are irresponsible and because every one of your readers knows that, I know the guys doing it know that too.
Bernanke knows it, Abe knows it, and Draghi—they all know it. But they don’t want it to manifest itself, and where would it manifest itself? It would manifest itself in the price of gold going up.
Well, we can’t have that happen because we know our policy is ridiculous and of course it got to even higher levels this year with Japan coming in to buy an extra $65 billion a month. It’s almost surreal the amount of gold they’re buying and what’s even more surreal is to see the price of gold go down at the same time that you see these demand factors exploding. I’m more referring to the Chinese than any other side. One could almost postulate that the Chinese could buy all the gold produced (ex-China and ex-Russia who don’t sell any gold).
So that leaves the other 178 countries to buy none. Well, we know they’re buying. We know central banks are buying. We know mints are buying. So there’s no doubt that there is a serious disconnect between the physical market and the paper market, unless the central banks have somehow been able to still supply that extra gold. I suggest that they’re going to run out and that ultimately these precious metals prices will break loose.
I think most of us will be stunned to see how high they would go, and imagine how high they would go if we all found that the banks had no gold and there are clues to this. I mean the Germans asked for 300 tons back which is no big deal and they’re told it’s going to take seven years. Well, theoretically it was 4% of the US supply in gold. Why can’t you deliver 4%? Why does it take seven years to deliver 4% of the gold? I mean it just begs the question and that’s one of the reasons I think they don’t have the gold. So that’s why they orchestrated the raid.
TD: One thing I always thought was interesting Eric and I’d like to ask your thoughts on it, is that period where Gordon Brown sold Britain’s gold.
ES: Right, Brown’s bottom.
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