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Compare Supply and Demand Statistics with Estimated Loaned Gold Levels

According to the GFMS Gold Survey 2005 on levels of central bank loans in the gold market:

“Since official lending peaked in 1999, when according to our estimates it exceeded 4,700 tonnes, the quantity provided to the market from central banks’ swaps and deposits has fallen sharply. Indeed, we calculate that in 2005 official lending fell by a further 470 tonnes, with the outstanding total no more than 2,970 tonnes by year end.”

To put these levels of estimated gold loans in perspective, compare the numbers of 4,700 tonnes* (151 million ounces of gold) and 2,970 tonnes (95 million oz.) with other figures used by GFMS in calculating totals in the gold market:

• Jewelry demand in 2005 was 2,700 tonnes (87 million oz.)
• Annual mine production has averaged roughly 2,500 tonnes in the last decade (80 million oz.)
• Net world investment in 2005 was 736 tonnes (23 million oz.)
• Official central bank sales in 2005 totaled 656 tonnes (21 million oz.)

In other words, there is more loaned gold estimated to be in the market throughout the year than comes from annual mine production, investment demand, or jewelry demand, yet the market does not reflect its impact because it is not accurately or completely reported. Also, GFMS is using a snapshot approach to explaining a gold loan market that changes on a daily basis. GFMS estimates loan levels at one specific point in the year, then state that the target is a “constantly moving” one, essentially wiping out the usefulness of their own work in estimating loaned gold levels.

“Measuring on a scientific basis and to any great degree of accuracy the net contribution to demand from investor activity in the OTC market is a Herculean task for at least two reasons. First, the virtually complete lack of transparency in the OTC market. And, second, the fact that one is dealing with a constantly moving target.”

- GFMS Gold Survey 2004

* 1 tonne = 32,150 ounces of gold

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