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Are Gold Loans Increasing or Decreasing?

GFMS states in their estimates included in their annual Gold Survey in the last four years that they believe that gold loans have decreased significantly since the lending highs in 1999. Transaction levels and the number of transactions on the LBMA have spiked considerably in the last year, while central bank sales have slowed. As central bank sales have slowed, mine production has also been flat to slumping in the past few years. Investment demand and fund activity in the gold market, according to the WGC, has increased some over the past year, while the monthly average of ounces transferred on a daily basis on the LBMA has increased enormously in 2006 when compared to the same monthly averages in 2003, 2004, & 2005.

http://www.lbma.org.uk/clearing_table.htm

Yet, in the last year as evidenced by LBMA clearing statistics in the link above, and during a period of time when central bank sales have slowed and mine production has stagnated, levels of transferred gold and the number of transactions in the market have increased markedly. The chart linked above shows that the amount of gold transferred in the market has increased nearly 30 percent in the last year as well as the numbers of transactions.  So while some of this increase can certainly be attributed to private, non-bank parties and fund involvement in the market, no one but central banks have the level of gold to transact and increase levels of activity in the market by 30 percent in a single year-over-year period.

Currently, GFMS attributes their lower estimated levels of loaned gold into the market to low lease rate levels. They did not share the same sentiment a decade ago when lease rates were at a similar low level.

“Contrary to expectations, the low level of gold leasing rates during the past year has not led to many central banks withdrawing from the market. If anything, the bullion banks have successfully persuaded new entrants to lend their gold... The growing central bank participation in gold swaps and deposits has complicated the analysis of the net impact of the official sector on the market.”

- GFMS Gold Survey 1992

Lease levels haven’t stopped the increase of official sector gold loan activity in the past. Who’s to say, with 100% certainty, that it isn’t also the case currently? Without audited, confirmed loan information, no one can. Blanchard and Company, Inc. firmly believes that, despite near all-time low lease rates being earned by central banks on their gold, the leasing of their gold is one of the only potential sources of supply that could possibly be having this large an impact on transaction levels.

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