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You are here You are here: Home Study Money & Banking Price of Gold
   
  Price of Gold    
Click tab above right:   Expand Introduction   to view the introduction.
b of e sm

What is the price of gold?

Depends upon:
   ■ How much you want to buy.
   ■ How soon you want it.
   ■ Circumstances of purchase.
   ■ Geopolitical events.

What is the price of gold?

The hypothesis has not been fully developed, however put simply:

  • Unconscious Procreation is the single defect in the control system.

The fiat, debt-based money system depends upon [unconscious] growth to pay back the interest.

Homoeostasis and sustainability does not fit with debt-based money. This is evidence that the concept of Unconscious Procreation has never been considered by the money controlers.

The global financial crisis is the end-game for debt-based fiat money.

The value of everything is based upon this false premise of [unconscious] growth.

On 02/13/2015, Zero Hedge had an article titled, "Is Russia Planning A Gold-Based Currency?"

A major problem with this idea is what is it [gold] worth?

Part of the inability to come up with a price is the fact that nobody knows how mch of it [gold] there is.

Then there is the whole issue of silver of which there is a much better / more accurate understanding of how much of it [silver] exists. Silver is certainly underpriced, but by how much? A case can be made for the price of silver to be at, or near to, parity with gold.

That a premium exists to purchase large quantities in not in question. How much that premium is, probably varies greatly, depending upon who is buying, who is selling, and what quantity.

Why would anybody with multi-hundred tons of gold [or more] want to sell any cheap? What do they need the money? [joke]

List of countries by gold production

In May 2014, Zero Hedge posted "As Russia Dumps A Record Amount Of US Treasurys, Here Is What It Is Buying". At that time, ZH noted:

  • “On average they have been accumulating 0.5 million troy ounces every month. Therefore, the near 1 million ounce purchase [31 tons] in April is a definite increase in demand.”
Rank Country/Region Gold production in 2013 
  World 2,770 (metric tons)
1 China 420
2 Austraiia 255
3 United States 227
4 Russia 220 (or 18.33/month)
5 Peru 150
6 South Africa 145
7 Canada 120
8 Mexico 100
9 Uzbekistan 93
10 Ghana 85
11 Brazil 75
12 Papua New Guinea  62
13 Indonesia 60
14 Chile 55
18 Philippines 37
  Rest of world 666 (metric tons)

russian gold header 612

So as Russia is selling record amount of US paper, what is it buying? For the answer we go to Goldcore which tells us that...

Russia Buys 900,000 Ounces Of Gold Worth $1.17 Billion In April

The Russian central bank has again increased its gold reserves by another 900,000 ounces worth $1.17 billion in April.

Russia's gold reserves rose to 34.4 million troy ounces in April, from 33.5 million troy ounces in March, the Russian central bank announced on its website yesterday. The value of its gold holdings rose to $44.30 billion as of May 1, compared with $43.36 billion a month earlier, it added.

 goldcore bloomberg chart0 21 05 14 sm

At right is a summary from Bloomberg of the April data template on international reserves and foreign currency liquidity from the Central Bank of Russia in Moscow:

Russia's gold & foreign exchange reserves remained virtually unchanged at USD 471.1billion in the week ending May 9. Russia’s reserves have fallen since the crisis began but remain very sizeable. The reserves include monetary gold, special drawing rights, reserve position at the IMF and foreign exchange.

The 900,000 ounce purchase is a lot of physical gold in ounce or tonnage terms but as a percentage of Russian foreign exchange reserves it is a very small 0.24%.

Gold as a percentage of the overall Russian reserves is now nearly 10%. This remains well below the average gold holding as a percentage of foreign exchange reserves of major central banks such as the Bundesbank, Bank of France and the Federal Reserve which is over 65%.

The Russian central bank has been gradually increasing the Russian reserves since 2006 (see chart above). On average they have been accumulating 0.5 million troy ounces every month. Therefore, the near 1 million ounce purchase in April is a definite increase in demand.

This was to be expected given the very pronounced geopolitical tension with the U.S. and west over Ukraine. Indeed the TIC data shows that Russia has been aggressively divesting themselves of U.S. Treasuries.

Russian holdings of U.S. Treasuries fell very sharp, by nearly $50 billion, between October and March 2014 or nearly a third of Russia’s total holdings. Over half of the plunge came in March, when $26 billion was liquidated as western sanctions were imposed. TIC Data for April won’t be available until June and will make for very interesting reading.

Especially given the mysterious huge U.S. Treasury buying that is being done by little Belgium. This has analysts scratching their heads and has aroused suspicions that the Fed and or the ECB may be behind the huge Belgian purchases.

goldcore bloomberg chart1 21 05 14 sm
Russian Gold Reserves
in Million Fine Troy Ounces
1995-2014 - Monthly Chart (Bloomberg)

Russia has already made their intentions regarding gold very clear. Numerous high ranking officials have affirmed how they view gold as an important monetary asset and Putin himself has had many publicised photos in which he very enthusiastically holds large gold bars.

On May 25th 2012, the deputy chairman of Russia's central bank, Sergey Shvetsov, said that the Bank of Russia plans to keep buying gold in order to diversify their foreign exchange reserves.

"Last year we bought about 100 tonnes. This year it will be less but still a considerable figure," Shvetsov told Reuters at the time.

The World Gold Council reported yesterday that central bank purchases were 70% above their 5-year quarterly average, led by Iraq and Russia. The Eurozone actually became a net buyer thanks to Latvia joining the single currency union, adding its gold to the Eurozone reserves as part of the Euro treaty.

Russia may be planning to give the ruble some form of gold backing in order to protect the ruble from devaluations and protect Russia from an international monetary crisis and the soon to return currency wars.

Russian central bank demand and indeed global central banks demand is set to continue as macroeconomic, monetary and geopolitical uncertainty is unlikely to abate any time soon. Indeed, it may escalate substantially in the coming months as we move into the next phase of the global debt crisis.

link to this post at Zero Hedge

» 85891 reads » 315 comments


russian gold sm
link to: Angry Plant's comment
link to: El Gordo's comment
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Additional Selected Comments

gold supply

How Much Gold Stock is There Really?   @ Gold Standard Institute International

gold barsPrologue

This was added after the article below was first published. I was accused by a few of being speculative, though I had admitted as such throughout the article. It is possibly best to explain the thought process behind the article…

It goes without saying that the best method for establishing a valid story is the sequential structuring of events – facts – one after the other. A diligent enough assembly of facts will begin to tell its own story without any need for the author to interrupt. In almost all subject areas this is not only desirable, but possible. With reference to the subject of the amount of gold in the world, the known facts are sparse and separated by centuries and sometimes millennia. Author interruption – otherwise known as speculation – becomes wholly necessary, though regrettable. Whilst the speculation cannot uncover with any precision the maximum amount of gold in the world, the facts, threadbare though they are, indicate with a certainty that the previously accepted figure for the total amount of gold in the world under-represents the facts to a remarkable degree. PB

Current Estimate

The current estimate for the amount of gold stock in the world is in the region of 170,000 tonnes. As the very first step, it needs to be acknowledged that an estimate is all that is available. Running a worldwide survey on how much gold people own is rather pointless. Even in good times, people are noticeably reluctant to discuss their true wealth. In troubled times, such as now, that becomes an unwillingness to even be interviewed. Nevertheless, it also needs to be emphatically stated that 170,000 tonnes is far too low an estimate and that it is time for a revision. Every single media outlet repeats this same figure, or similar, as though it is gospel.

Included in this 170,000 tonnes is the 10,000 tonnes estimated as being the total amount of gold mined in the history of the world prior to the Californian gold rush of 1848. This was simply a guess.

  • David Guyatt, in his article “The Spoils of War”, commented that prior to the Californian Gold Rush of 1848 the amount of gold believed to be in existence was about 10,000 tonnes, i.e. it was “the sum total of gold mined throughout the world during the preceding 5,850 years, for which mining records exist.” In correspondence with the World Gold Council in 1998, Guyatt says that the WGC admitted that this figure was just an “industry estimate”, although as he says: “Nevertheless, this estimate has been incorporated into current day official mining figures and punched out as actual fact.”
    The Thunder Road Report

The “industry estimate” of the amount of gold mined in that 5,850 years works out to be 1.7 tonnes a year. The assumption that underpins the idea that not much gold was mined prior to the Californian gold rush is essentially, that if it takes modern methods a whole year to extract 2,400 tonnes then it would take far, far longer for more primitive cultures to extract the same amount of gold.

The huge, gaping flaw in the modern versus primitive technology theory is that it assumes that all else was equal. It unequivocally was not. The further back into history we travel, the more accessible and plentiful gold was, just as it will be far less plentiful in the future than it is now. Our ancestors mined all the easy to access gold in the world. The Mesoamericans pulled chunks of it out of rivers with their hands it was so plentiful. Today we are mining the residual leftovers – the sparse remnants of what was once plentiful.

Filipino Gold Panners

In 1986, Ernie Maceda the Filipino Minister for Natural Resources, revealed that the country’s gold panners produced more than 18 tonnes of gold a year. All that from the placer mining of just one country*. The usefulness of this Filipino figures is that the law at the time stipulated that all gold had to be sold to the Filipino government. Thus the miners were delivering directly to the central bank allowing for a more precise than usual estimate of gold production.

If primitive panning methods were able to produce a declared total of 18 tonnes a year in 1986, then it makes a mockery of the claim that at an earlier time, when gold was in far greater abundance, the whole world was only able to produce 1.7 tonnes a year. It goes far beyond just implausible, it speaks of an estimate made by people who were completely out of touch with the reality of gold production.

Nor should it be assumed that earlier gold extraction was as primitive as simple panning. The Ancient Egyptians used far more sophisticated mining techniques than the Filipino panners. This included fire techniques to break apart large rocks which were then crushed to dust before the residual gold was washed out. The Mesoamericans were even more sophisticated. Amongst other scientific feats, it is highly likely that they utilized the mercury amalgamation method of gold and silver extraction before the Europeans**. The ancients were not as primitive as 20th and 21st century arrogance would have us assume. To imagine them as knuckle-draggers scratching gold out of rocks with pointy sticks, and only able to glean 1.7 tonnes of gold per annum worldwide, speaks more to our lack of sophistication than theirs.


Amendment

* A figure sent from a contact in the Philippines (see comments at the bottom – ‘Peter’) informs that this figure was probably exaggerated by gold from non-panning sources. According to Peter’s sources (he is a refiner in the Philippines), the true panning figure as of 2008 was about 6 – 7 tonnes a year. Bearing in mind the diminishing nature of production from panning, but coupled with the greater interest in 2008 than in 1986 (year of Maceda’s quote), I guess that the safest presumption is that the figure would be similar.

So, the figure of 18 tonnes a year is reduced to say 6 tonnes a year. Because I built a heck of a lot of fall-back position into this article (knowing how much flack I would receive), this does not alter the hypothesis. I used the stats from one Asian country. I can think of another 8 Asian countries, all high gold, high panning areas, where the production would be similar. If panning production in the Philippines is 6 tonnes a year, then panning just from Asia can be assumed to be a minimum of 50 tonnes a year.

Placer gold is harder and harder to find, and has been so for all the thousands of years of production. The gold that is freed from its ore source is in that situation because of the erosion of rock over hundreds of millions of years. What is being panned out is not being replaced at anywhere near a replenishment rate. That 50 tonnes a year is a much reduced rate from 6,000 years ago.

My honest interpretation of this info is that the case becomes ever stronger that the amounts of gold produced in ancient times were truly enormous, more so that I stated in the article. The importance of placer mining is that, in one variation or another, this is the one method of production that has existed since time immemorial.

Ignoring the fact that we know by the law of diminishing returns that this figure was far greater in ancient times, but just using the same figure, then its application to the two other designated gold regions (Europe and Arabia – there is not enough evidence yet of mining from the Mesoamerican region in this period) produces a figure of 150 tonnes a year. From 4,000 B.C to year dot that is a lot of gold. A very conservative, pre A.D. figure of 600,000 thousand tonnes.

** ‘Pre-Columbian Societies Knew a Thing About Extracting Gold’ – AAAS.ORG

Middle East power brokers

From a meeting with Middle East power brokers in 2011…
“’You guys don’t show up on my radar screen here. I have a feeling there’s a lot more gold around here than anyone is willing to admit.’ They all sort of looked at each other and smiled and so without saying so in so many words, I was led to believe there was a lot more gold out there than what shows up in the official statistics…”
Jim Rickards – investment banker and US Intelligence and defence insider.

When the tomb of Tutankhamen was opened in 1922 it contained staggering amounts of gold. The coffin was over six foot long and made from solid gold an eighth to a quarter of an inch thick. The best estimates are that the amount of gold needed to create this coffin alone would have been 1.5 tonnes.

“At first I could see nothing, the hot air escaping from the chamber causing the candle flames to flicker, but presently, as my eyes grew accustomed to the light, details of the room within emerged slowly from the mist, strange animals, statues and gold – everywhere the glint of gold. For the moment – an eternity it must have seemed to the others standing by – I was dumb with amazement, and when Lord Carnarvon, unable to stand the suspense any longer, inquired anxiously, ‘Can you see anything?’ it was all I could do to get out the words, “Yes, wonderful things.”
Howard Carter’s description upon opening Tutankhamen’s tomb – 1922

There were full sized, gold chariots in Tutankhamen’s tomb. The famous facemask weighted over 24 kilograms. All this from one of the least important pharaohs who died young and without ever leading an army.

Because of his insignificance, Tutankhamen was buried in one of the smallest and poorest of the pyramids. His only claim to fame is that his tomb was relatively intact. The 100 or so tombs of the other, far more revered pharaohs were discovered only after they had been stripped of all their gold. How much gold existed in those other tombs can only be left to the imagination.

Even if the Ancient Egyptians, with their tens of thousands of slave labourers and more advanced techniques, were so incompetent that they were only able to mine the same amount per year as the Filipino panners of 1986, they did that for 2,000 years. This most conservative of figures would have produced an amount of 36,000 tonnes of gold. Ten times that amount would be the more likely figure.

By the time Roman gold mining records began, Egypt had already mined out its country of the easily available gold. The Egyptians moved south and found enormous quantities of gold in the legendary mines of Nubia. It is reputed that there was more gold mined from Nubia than from all other sources in the known world put together prior to the California gold rush. Whilst the Nubian mines undoubtedly produced huge amounts of gold, that is unlikely. There was also the Midian mine in the far north of what is now Saudi Arabia where the Red Sea meets the Gulf of Aqaba. This area was famous for its abundance of gold.

“By 325 BC the Greeks had mined for gold from Gibraltar to Asia Minor.” (World Gold Council)

Even after the beginning of official records, only a percentage of the actual mining was recorded. Probably a majority in some countries, but by no means all countries. In many countries where gold mining took place, few records of any sort were even attempted until recent times.

Asian Gold – I

“…contains rich underground veins of many kinds, including many of silver and gold…”
Diodorus Siculus, Bibliotheca Historica, 1B.C. – speaking of India

The history of Asian gold is a book all on its own. As with Egypt, by the time Roman records began, India had already mined out its country of the easily available gold. Only in the present day has mining technology advanced to the point where the residual deposits are becoming viable again.

The Indus Civilization is the oldest in existing records, beginning just after the ending of the Ice-Age. The Mehrgarh period of the Indus Civilization has been dated to at least 7,000 B.C.. The Ancient Egyptian Civilization came almost 4,000 years later. There is some evidence to suggest that coinage originated in the Indus Civilization and speculation that the idea arrived in Lydia and the Greek states from there.

Between 2000 and 2010 India imported 7,500 tonnes of gold. In just 2010 alone India imported a World Gold Council estimate of just under 1000 tonnes. In 2011, imports are again expected to be 1,000 tonnes. The Nizam of Hyderabad alone was reputed to own 15,000 tonnes. The significance of gold to the Indians has never waned. It is a major part of the fabric of the culture and far more than just a store of wealth, let alone a medium of exchange. The Hindu creator was born from the cosmic egg of gold. Brahma is known as ‘Hiranyagarbha’ – the one born of gold. Hiranya, the ancient name for gold comes from the root ‘Hri’ meaning ‘imperishable’.

“The Sun is Brahman – this is the teaching. An explanation thereof (is this). In the beginning this (world) was non-existent. It became existent. It grew. It turned into an egg. It lay for the period of a year. It burst open. Then came out of the eggshell, two parts, one of silver, the other of gold.

That which was of silver is this earth; that which was of gold is the sky. What was the outer membrane is the mountains; that which was the inner membrane is the mist with the clouds. What were the veins were the rivers. What was the fluid within is the oceans”.
Chandogya Upanishad, III, 19, 1-2

In 1997 the ‘International Center for Peace and Development’ quoted a report showing that India had 29,000 tonnes of gold in private hands. As already mentioned such reports tend to understate the real amount due to people’s natural reluctance to disclose their holdings.

“How much gold jewellery is available in North America for refiners? (I will ignore Europe and Asia, given the higher regard in which gold is held there.) An industry contact tells me the average household owns jewelry containing 0.75 ounces of gold. With 130 million households, that represents approximately 3,000 tons.”
Publius – Journal of The Gold Standard Institute Mar. 2011

In the US, there is a very low awareness of gold and the nation has a history of less than 300 years. It is reasonable to assume that in India, where gold has been widely accumulated as the only form of wealth and savings for at least 6,000 years, and where there are 1.2 billion people, there is at least 100 times this amount… 300,000 tons of gold. It cannot be stressed too much that Indians have a huge awareness of, and respect for, gold. It is owned, usually in the form of bars or jewellery, by everyone down to village peasants. The Indians, who have always revered gold to an even greater degree than the ancient Egyptians, have traded for gold from all over the world for at least 5,000 years. India has historically been spoken of as the gold and silver sponge, meaning it enters, but never leaves.

Asian Gold – II

Siam is the old (and beautiful) name for Thailand. It comes from Sanskrit meaning gold. The Chinese still call Thailand ‘Jin Lin’. It means ‘peninsula of gold’.

“Gold is so plentiful that no one who did not see it could believe it”.
Marco Polo reporting on gold in Lokak (Siam or Malaya)

“in great abundance because it is found there in measureless quantities”… “so much indeed that the ruler of the island has a very large palace entirely roofed with fine gold, just as we roof our churches with lead”
Marco Polo reporting on gold in Japan

“Gold dust is found in the rivers, and gold in bigger nuggets in the lakes and mountains”.
Marco Polo reporting on gold at Karajang (Chinese province of Yunnan which is still a gold mining area today)

The vast gold treasure of the Kublai Khan in China will have been added to and handed on down from one dynasty to the next. It is reasonable to assume that Mao’s takeover would have seen this hoard increased through confiscation. It is also possible though that this treasure became a part of Yamashita’s gold…

Yamashita’s Gold

Yamashita’s gold, which is amply documented, tells a story of vast amounts of gold. During World War 2, Japanese forces pillaged gold and platinum, along with other valuables, from every territory that they occupied. General Yamashita was charged with hiding this treasure trove. Most of the treasure was shipped directly to Japan. Toward the end of the war US submarines blockaded Japan and it became necessary to hide the gold elsewhere. The chosen location was the Philippines (and Indonesia).

In 1945 the US located some of these stashes and huge tonnages of gold were shipped back to the US. There is much evidence to suggest that Ferdinand Marcos subsequently recovered most of the remaining gold hidden in the Philippines. The following is an extract from a legal document in a case lodged in the Supreme Court of Hawaii in 1998 – ‘Roger Roxas and the Golden Buddha Corporation vs. Ferdinand E. Marcos and Imelda Marcos’. The case was won which means that the evidence was found to be credible. Roxas was awarded 43 billion US’s – later reduced to 22 billion on appeal.

Fourth paragraph:
“Curtis (Robert Curtis-owner of a mining business in Nevada) also testified that General Ver had brought him to a basement room in the Marcoses’ Miravelles summer palace, where the gold bars were kept. Curtis entered a room “about roughly 40 by 40,” stacked to the ceiling with bars of gold. He estimated the ceiling to be ten feet high. Two or three four-foot wide aisles ran through the stacks of gold. The bars were in a standard seventy-five kilogram size. He noticed that the bars had “oriental markings” on them.”

Allowing for three, four-foot wide aisles, the room contained approximately 11,200 cubic foot of gold. That is over 6,700 tonnes. All this gold came from just one site… Luzon; there were a total of 172 sites.

Official gold stock of 170,000 tonnes is best visualised as a cube with sides of 67 feet (20.4 metres), meaning that its sides are 11 foot (3.35 metres) shorter than a tennis court. That is supposed to represent the sum of all gold mined… ever. In light of just that one paragraph above it is not possible to take the ‘industry estimate’ of gold stock seriously.

Fifth paragraph:
“On cross-examination, Curtis testified that his study of the Yamashita treasure had suggested that the treasure contained eighteen buddhas and was distributed among 172 sites. He also testified that Ferdinand had told him that the gold that Curtis had seen had come from a site in the Luzon region. Moreover, in 1975, while Curtis was working with Ferdinand, another site was discovered in the town of Teresa, and more gold was retrieved.”

Further testimony from the same case both lends support to the testimony of Curtis and speaks of another gold storage room:

Eighth paragraph:
“… General Ver showed him (Olof Johsson, a clairvoyant called in to help in treasure hunting} a basement room in the guest house outside Malacanang Palace and another room in the summer palace, both filled with gold. He was also shown a golden buddha in the summer palace that was too heavy for him to move. Jonsson described the basement room in the guest cottage as being approximately twenty feet wide, forty feet long, and twelve feet high. He estimated the room in the summer palace as measuring “probably 40 feet by 25 or something” and twelve feet in height. Both rooms were filled with two-foot-long bars of gold stacked to the ceiling. Jonsson testified that it was possible that the bars were four inches wide and four inches thick, but that he could not recall exactly.”

Eleventh paragraph:
“(Michael) O’Brien (an Australian in real estate business) also traveled to the Philippines. At one point, when he expressed doubt as to the existence of so much gold, he was blindfolded and taken to a warehouse. Inside the warehouse was a stack of approximately three hundred to four hundred boxes, each the size of a six-pack of beer. O’Brien opened one and observed that it contained three crudely smelted gold bars, which he described as being pitted “like an orange peel.” He tried to lift several other boxes and found them too heavy to move.”

Two Australian bullion dealers testified under oath in the same trial that they had sold 1.63 trillion dollars worth of bullion on behalf of Marcos in the 1980′s. As the precise year was not given I have assumed a price of $500 per ounce. That equates to just over 100,000 tonnes of gold. This evidence was accepted by the court as truthful. The full range of possible tonnage based upon 1980′s prices would be from 84,000 tonnes to 169,000 tonnes.


In 1998 a Filipino newspaper called The Enquirer published an article revealing that 96 members of the Filipino military had signed a joint affidavit declaring that they had, between 1973 and 1985, recovered over 60,000 tonnes of gold from 30 out of the 172 Japanese treasure sites. If these 30 sites were typical, then the total amount of gold recovered by Marcos was just under 350,000 tonnes. Far more of the gold reached and as far as is known, remains in Japan. The quantity seized by the US from both Japan and the Philippines is unknown.

Japan, The Philippines, Indonesia, India and China hold vast tonnages of gold that western-centric estimates seem to have entirely ignored in their calculations. There are also very large hoards with non-public documentation in Europe, particularly in Austria, the Netherlands and Switzerland and quite possibly other European countries that the author is not aware of. The US holds a large amount of non-publicly documented gold which far surpasses its official holdings of around 8,000 tonnes. Note that there is no claim here that any of these hoards are known about by the relevant government authorities.

Mesoamerica, Vatican and Java

The Mesoamericans were actively mining much of Central and South America. How much gold did they mine? The ransom unsuccessfully paid by the Incans for their Emperor Atahualpa alone was sufficient to fill a whole room with the measurements of 17ft (5.2 metres) by 22ft (6.7 metres) by 8ft (2.4 metres) from wall to wall and from floor to ceiling with gold (Wikipedia). The gold figurines and plates were melted down and turned into uniform ingots on the spot. The room contained over 2,900 cubic foot of gold in ingot form. That one room alone contained over 1,500 tonnes of gold which officially represents 15% of the total of all the gold mined in the whole world for the previous 43,000 years.

That was just one amount of gold in the 300 years of pillage that was South and Central America’s fate. Mesoamerican artefacts were still being melted down in London in the 19th century.


“But if you tap into the Vatican accounts, of the Vatican bank, you come up with a claim of total bullion… the total value of the Vatican bank reserves would claim to be more than the entire value of gold ever mined in the history of the world.”
Lord James of Blackheath – speech in The House of Lords 2010

It is unlikely that the Vatican have any reason to exaggerate their gold reserves.


Rumours of a vast Java owned gold hoard, the product of a thousand years or more of trading, that dwarves the rest of the world’s gold combined have circulated for centuries, but there is no information available in the public domain to substantiate this.

Deliberately Understated

Whilst much of the world’s gold is widely distributed, as in India, much of it is almost certainly in large, privately held or sovereign hoards. There is no doubt that these hoards are known about to some beyond the sphere of the actual owners.

It is possible that one of the large hoards of undisclosed gold could re-surface and be used to back one or more of the existing major paper monies. On the positive side this does allow for a measure of optimism in what is otherwise a ‘game over’ situation. If there is a solution to the current monetary meltdown, it will come as a bolt from the blue, and it will involve large amounts of previously undisclosed gold.

Why is it that the amount of gold in the world has been deliberately understated as appears to be the case? The answer most likely lies with the myth, accepted by almost everyone, that gold is valuable because of its shortage. The fear, entirely unfounded, is that if the real amount of gold in the world were publicly acknowledged then gold would be suddenly and massively reduced in value. This would then lead to convulsions in the world’s monetary systems as it is gold that underpins all concepts of money.

The ancient myth that gold’s value is due to its shortage has survived thousands of years right up to the present day. It is far from amusing though as there appears to have been a fair deal of skulduggery committed toward the end of maintaining the charade… all for naught. A minimum of 1,200,000 tonnes of gold gives a stock to flow ratio of 500 to 1. Gold is already the only possible money because of its stock to flow of 70 to 1. Increasing it to 500 to 1 would enhance gold’s monetary property, not diminish it.

It is time to put aside the myth that gold is valuable because there is not much of it. Gold is a store of stable value over time because of its high stock to flow ratio – because there is so much of compared to the flow.

Another reasonable speculation with regard to the persistence of the myth of gold’s rarity is that it obviously an advantage to those who wield power through the issuance of paper money. “There isn’t enough gold to return to the gold standard” is a common refrain from those whose self-interest it serves.

Once it becomes clear that gold will continue to hold its value, no matter how much of it enters the marketplace, then much of it could emerge from hiding. Trust in governments, which is currently plumbing new depths, is also a pre-condition to that though.

There are numerous conspiracy theories which claim that covert agencies control the world’s gold, and therefore its destiny. This is not wholly true, there is far more gold in the world than even these people know about. By no means are all the large hoards of gold owned by those of, to put it politely, questionable intent. There are those who understand, if not intellectually at least viscerally, the morality of gold and are sound custodians of that with which they are charged.

Summary

No claim to precision can be made with regard to the amount of gold in the world. All that can be done is to try to arrive at an educated approximation based on such vague evidence as is available. The evidence overwhelmingly states that 170,000 tonnes is probably around 10% of the gold that actually exists.

Somewhere between 1,200,000 tonnes and 2,500,000 tonnes would seem to be a reasonable and conservative estimate. Obviously it could go way beyond 2,500,000 tonnes. What is beyond doubt is that 170,000 tonnes barely represents the tip of the iceberg of the world’s gold stock. Let us be rid of this figure once and for all. It is a folly to keep repeating an obvious error as though it were fact.

– Office of the President, Philip Barton

Above-ground Gold Stock
- How Much Is There and Why Does it Matter?
    From: Goldbroker.com
Global Gold Stock
 aboveground gold stock 01 sm

To understand the price of gold, the relevant supply is the total supply, not the new supply coming to market during the last year, week or month. The supply of gold consists of all of the supply that exists, and the relevant demand is the total demand, not the new demand coming to market during any year. For gold, there is always a large stockpile, and it never gets smaller. The vast majority of all the gold mined throughout human history still exists and is held either in bars, coins, or jewelry. In most cases when a buyer purchases gold, it moves from the seller’s hoard to the buyer’s hold.

Exchange demand is expressed by giving up something in an exchange in order to obtain the thing demanded, and reservation demand is a demand that is expressed by holding onto something that you own. People who hold gold are demanding it by holding it off the market. Gold, unlike commodities, is not consumed, and therefore the traditional models and theories of supply and demand simply do not apply. Deficits or excesses do not, and cannot affect the market price, for the simple reason that nothing is consumed. In a sense, all that is happening in the market is that gold moves from one person’s stockpile (the mining company) to another person’s stockpile (the investor). There is no true consumption of gold in the economic sense; the stock of gold has been increasing throughout history but at a decreasing rate and now remains essentially constant, while ownership shifts from one party to another.

It is for this reason that I believe the stock of gold is very important to understand. If we accept the Thomson Reuters GFMS’ numbers of 176,000 tonnes of gold above ground, then the new gold (mine production) represents only 1.62% of the global gold stock and the gold market represents only 2.53% of the global gold stock (graph #1). More important is the fact that a large part of this stock can be brought to market on very short notice and at very low cost. Most of the gold is stored in its most natural form.

Graph #1: Global Gold Stock

global gold stock

Global Gold Stock

Approximately 20% of all the above-ground gold stock is under official control (graph #2). It is therefore evident why central banks have much more impact on the gold market than mining supply. Just the central bank gold stock is 7 times larger than the entire gold market. If accurate, the US official gold reserves are close to 2 times and the Euro Zone official reserves close to 2.5 times the entire gold market (graph #2).

Graph #2: Global Gold Stock

gold stock

Total Gold Reserves vs Total Gold Production

Let’s look now at the above-ground stock of gold. Do we really know how much there is? There is a number that has been used by the World Gold Council and, because of its excellent reputation, some have taken this figure as a fact. However, if we research a little, we find that this number is an estimate (statistical approximation) and has different margins of error, depending on the period we look at. According to Nick Laird, who has done an excellent research on the subject, 5,300 tonnes have been mined before 1500, 4,700 tonnes from 1500 to 1850, and the rest of 157,466 tonnes between 1850 to 2013 (chart #3).

Graph #3: Total Gold Reserves vs Total Gold Production

total gold reserves total gold production 600

The oldest gold treasure in the world

I had the privilege to see some of Nick’s methodology and I was impressed. His meticulous attention to detail and methodology in projecting data is above reproach. As you can see in graph #3, he splits the data in three parts: before 1500, 1500 to 1850, and 1850 to today. In my opinion, they all have different margins of error. The worst is the one before 1500. I would even split this period farther in two: before year 0 and year 0 to 1500. We know very little about mining gold before year 0. However, as the picture below shows, gold was mined and valued already 6,000 years ago.The Varna Necropolis is a burial site in the western industrial zone of Varna, Bulgaria. At this site was discovered the oldest gold treasure in the world, dating from 4600 BC to 4200 BC. This shows how far in history knowledge of gold goes and how long it has been mined. Gold has been accumulated for at least 6,000 years, and all over the world.

Picture #1: The oldest gold treasure in the world, Varna, Bulgaria – 6,000 years old

oldest gold treasure world 413

Remember also what we said above, that gold is not consumed. It is just passed from one owner to another. It doesn’t degrade with time either, so it’s possible that the gold used for my wedding ring was mined 6,000 years ago and who knows where. India’s passion for gold is time immemorial. India’s mines seem to have run out of gold when Europe was just being settled. Roman historian Pliny lamented, some 1,800 years ago, how India, the sink of precious metals, was draining Rome of gold, an appellation that resonates even today.

Above-ground Gold Stock-to-Flow Estimations

I put together some estimations that I consider as of a very good source but without having had access to the methodology. As you can see in graph #3, four of them average to about 166,606 tonnes, while Philip Barton of The Gold Standard Institute speculates this figure to be only 10% of the gold that actually exists above ground. His speculation is of 1,200,000 tonnes to 2,500,000 tonnes. How is it possible? Well, it all comes, in my opinion, to the period before 1500 and I think even more to the period between year 0 and 4000BC, and possibly even beyond that. Certain assumptions have to be made before we do any statistical approximation because we lack not some, but most of the data. If gold were a commodity it would not matter much since it would have been consumed, but gold is not. Not only that, but humans have gone through a lot of trouble to protect and conserve the stock of gold no matter how small, unlike any other possession. However, not just time is a problem but also space. There is very little information about gold mining in Asia and Africa between year 0 and 4,000 to 6,000 years ago. The “industry estimate” of above-ground gold assumes that if it takes modern methods a whole year to extract 2,400 tonnes then it would take far, far longer for more primitive cultures to extract the same amount of gold. Philip Barton challenges this theory, which assumes that all else was equal. He says that the farther back in history we travel, the more accessible and plentiful gold was. Our ancestors, according to him, mined all the easy gold in the world.

Graph #3: Above-ground Gold Stock-to-Flow Estimations

above ground gold stock flow estimations 600

Total Above-ground Gold and Commodities Stocks

Taking the average estimate of 166,606 tonnes, the total above-ground gold stocks could cover approximately 43 years of demand. If we assume Philip Burton’s more conservative estimate of 1,200,000 tonnes, then it would cover approximately 290 years. Looking at graph #4, we can understand why gold is not a commodity.

Graph #4: Total Above-ground Gold and Commodities Stocks

total above ground gold commodities stocks

Gold Stock-to-Flow Ratio

In graph #5, we can see that gold’s stock-to-flow has fluctuated between 45 and 90, with a mean of 66, for the last 100 years. Gold is one of the most liquid of all assets. Some analysts consider that up to 86% of global above-ground inventory could theoretically be mobilized in a relatively short time. However, the extent to which all of this gold can be considered “free float” is debatable. In financial markets, liquidity means the size of trade that can be executed without affecting the price.

Graph #5: Gold Stock-to-Flow Ratio

gold stock flow ratio 600

The Flow of Gold

I also created a flow chart to show, from a different angle, the importance of the above-ground gold stock. Unfortunately, it is not to scale. The above-ground gold stock box should be 41 times bigger than the gold market and 58 times bigger than the mine supply if we use the 176,000 tonnes estimation.

Graph #6: The Flow of Gold

flow gold 600

Annual Gold Production vs Annual Population Growth

The 176,000 tonnes comprising the world’s gold money stock is gold’s M3. James Turk from GoldMoney compares the above-ground gold stock to the US paper money supply M3. Gold’s M3 grows approximately at the same rate as world population and new wealth creation (graph #7), which are key components critical to determining the supply and demand for money. When M3 grows faster than gold’s M3, the former is being debased, and the price of gold in that currency will rise, assuming demand for both gold and the currency remain unchanged.

Chart #7: Annual Gold Production vs Annual Population Growth

annual gold production annual population growth 600

Combined Balance Sheet Totals vs Gold Price

In graph #8, we can observe that the US money supply, at least since 1959, correlates closely but not perfectly to the price of gold in US dollars. A more appropriate comparison would be to compare global M3 to gold, since gold is universal hard money (graph #9).

Graph #8: US Money Supply M3 vs Gold Price

money supply m3 gold price 600

Graph #9: Combined Balance Sheet Totals vs Gold Price (US, Euro Area, UK, Switzerland, China, Japan)

combined balance sheet totals gold price 600

World Gold Supply vs Money Supply M3 vs Gold Price

Graph #10 shows the trend of gold supply vs US dollar supply and the ratio between the two. As the supply of dollars increases while the supply of gold remains almost constant, the price has adjusted to compensate for the difference in supplies.

Graph #10: World Gold Supply vs Money Supply M3 vs Gold Price

world gold supply money supply m3 gold price 600

Conclusion

One of the most frequent and common arguments against gold as money has been that there is not much of it. In a recent report, the Official Monetary and Financial Institutions Forum (OMFIF) states that “there are also limiting influences, partly reflecting the limited availability of gold” for gold to play a major role in the future multi-currency reserve system. The OMFIF says, “Financial market gold amounts to about 60,100 tonnes. Unless one assumes a major shift from jewelry/industry demand to financial use, gold reserves remain mainly a zero-sum game, with the only increases coming from new mining (approximately 2,500 tonnes per annum) and from recycling (slightly less than 1,600 tonnes per annum). This amounts to an increase in available gold stocks of just above 4,000 tonnes per annum, or 6.7% of financial market gold. Net buying by official institutions of 400 tonnes of gold in 2011 (around one-tenth of the annual increase in gold supply) was the largest volume of net purchases in four decades.” The report also says “The (relative) scarcity of gold means that it could only ever replace a fiat currency on a fractional basis. However, even such a system is unlikely.” (7)

As we have seen above, both by conservative figures and more liberal projections, there is plenty of gold, and mostly above ground. Some argue that it is a store of stable value over time because of its high stock-to-flow ratio. However, high marketability is an important characteristic of gold. The easier a good can be converted, the more pronounced its “moneyness”. Gold and silver did not attain their monetary status due to their alleged scarcity, but rather due to their superior marketability. Fungibility is a crucial advantage of gold as a medium of exchange. Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution. For example, since one ounce of gold is equivalent to any other ounce of gold, gold is fungible. Because gold is accumulated and not consumed, it is the least rare metal on the planet. (6) Even though the new supply is very small, its stock never gets smaller but rather increases, even if very little, every year (1.62% per year or 0.25% per year, using Philip Barton’s lowest estimate of 1,200,000 tonnes).

Another way of measuring the above-ground stock of gold would be to inventory all the gold in public and private possession. No government has been able to do that or has even tried; not even the totalitarian ones. Even in countries where gold possession by individuals was restricted, gold was still circulating underground. I have witnessed it personally behind the Iron Curtain in the 1960s. The gold market is an extremely opaque market. When the government of India recently indicated a desire to inventory gold in temples, it had to back down under extreme public pressure. After 40 year of studying gold, I tend to believe/speculate there is a lot more than 166,606 tonnes. How much? I don’t know. Based on available information, the 166,606-tonne figure seems to be the most accurate. However, the 1,200,000 figure wouldn’t surprise me at all. As Philip Barton says it so well, “No claim to precision can be made with regard to the amount of gold in the world. All that can be done is to try to arrive at an educated approximation, based on such vague evidence as is available.” (2)

Bibliography:
  1. How much gold is there in the world? - Ed Prior, BBC News

  2. How Much Gold Stock is There Really? - Philip Barton, The Gold Standard Institute

  3. The Aboveground Gold Stock: Its Importance and Its Size – James Turk 

  4. The Myth of the Gold Supply Deficit - Robert Blumen

  5. E-mail Exchange between Nick Laird, Sharelynx.com and Philip Barton, The Gold Standard Institute

  6. A Reminder of How Different Gold Is – Fekete Research

  7. Gold, the renminbi and the multi-currency reserve system, OMFIF 

  8. In Gold We Trust 2014 - Ronald-Peter Stoeferle& Mark Valek, Incrementum AG 


Dan Popescu

Gold & Silver Analyst / Member of the Goldbroker.com Editorial Team

Mr. Popescu is an independent investment analyst and studies the gold and silver market and their future role in the international monetary system. He has followed regularly since 1970 the gold, silver and foreign exchange markets. He has a bachelor degree in physics (1993) from Concordia University in Montreal, Canada and has completed the Canadian investment management certificate (1999) of the CSI. He is a member and was the president in 2004 of the CSTA and also was president in 2005 of the Montreal CFA Society. He is a member of the CFA Institute, the MTA, NYSSA, UKSIP, the CSTA and the Gold Standard Institute International.

Money & Banking

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