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Who Knows the Accurate Levels of Loaned Gold in the Market?

No one has a 100 percent accurate count on levels of loaned gold in the market, as confirmed in interviews of George Milling-Stanley, gold market analyst for the World Gold Council. In 1997, he stated in an interview that “3,000 tons and maybe even 10,000 tonnes” have been borrowed from central banks and sold into the market. In 2003 he remarked, “The central banks are under no obligation to report what they lend into the market, what they place on deposit and what they do with their swaps, so there's a conventional-wisdom view, and a couple of different bodies have done some fairly serious research in[to] this and have come up with a figure [of] around 4,500 to 5,000 tonnes.”

First are industry groups such as Gold Fields Minerals Services, a gold market analyst service.* GFMS conducts informal polling of Central Banks and uses this information to create their estimated levels of central bank lending in the gold market each year. The problem with their statistics is that they do not use audited numbers, and their survey is published only once a year. Central bank lending is a constant process that could potentially change each and every day. A once annual snapshot of “estimated” loans from figures that are not audited does not give an accurate picture to market participants of the impact loaned gold has on the marketplace.

Another gold market analyst group, Virtual Metals, makes the estimate of 3,276 tonnes of loaned gold in the market from central banks currently. This is a difference of over 10 million ounces from the GFMS estimate of gold in the market from lending operations. Again, there is no basis of audited numbers for Virtual Metals’ estimates and, like GFMS, Virtual Metals estimates loan levels in the market, but does not include the loan data in their supply demand statistics.

http://www.virtualmetals.co.uk/PDF/YellowBook_October06_final.pdf

Bullion banks, the conduit for mobilizing central bank gold into the market, are perhaps the most informed on the actual levels of loaned gold in the market at any given time, simply because they’re doing the borrowing of the gold. There are only a dozen or so bullion banks active in the gold market, a number down sharply over the last decade as major consolidation in the banking market and a move away from physical commodity brokering has reduced active participants in the market. The active bullion banks remaining in the market are listed at:

http://www.lbma.org.uk/members_list.html

* - As a side note, Blanchard and Company, Inc. uses GFMS statistics and reports, but we also believe that their failure to include gold lending statistics in their overall supply/demand work seriously undermines the usefulness of the work. Unfortunately, as we will note later in this paper, while GFMS has expressed confidence in their annual gold loan estimates, they do not include those estimates in their regular supply/demand statistical analysis of the gold market. Even including estimates in with other data supported supply/demand analysis would be a vast improvement over leaving such influential market data out altogether.

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