Tuesday

World Gold Council Data on Gold is Wrong

I have always had a dispute with the data that Thomson Reuters GFMS GoldSurvey puts out, which the World Gold Council uses as the basis for its analysis of gold. Since I’ve been involved in the gold market, the supply always magically equals the demand. Of course, we know that’s almost impossible.

The report has two what I call fudge numbers. One is recycling, which is a very big item. The report suggests it could be upward of something like 1,600 tons some years. I don’t know how it would possibly come up with that number. I find it very difficult to get numbers on recycling in any country, let alone all countries.

Two, the report always uses what it calls a net investment demand or supply. It’s the plug number to make supply equal demand. Many times I think that the investment number is understated.

Furthermore, as I wrote in “Do the Central Banks Have Any Gold Left?,” we have seen a net increase in gold demand over the decade of at least 2,000 tons per year (2,000 tpa). China’s demand alone is going up 100%; jewelry demand is up 50%. Mine supply has essentially been flat at 2,700 tpa, or 2,100 tpa for Western consumption because China and Russia don’t export the gold they produce. As we move into 2013, we start to see significantly higher imports of gold into the Asian countries. That makes the shortages even more extreme. We could see demand of 5,100 tpa. That would result in a 3,000 tpa shortfall, not a balance. How can all these people be buying all this gold per year when the supply hasn’t gone up? That is why I question the GFMS data. I think it is flawed.