Are The Central Bank Vaults Empty?

by Charles Goyette

Recently by Charles Goyette: Behind the Curtain

Is it possible that the vaults of the world’s central banks, believed to be stacked with gold bullion, are really empty? Is all the gold actually there?

Something about the numbers doesn’t seem to add up.

The importance of the question accelerates in the face of global money-printing, which is also accelerating. Since the start of the economic meltdown five years ago, the balance sheets of the world’s central banks have been growing at a frantic pace.

The U.K. has led the pack, up 362%, followed by the United States, which is up 223% – even before QE III. China is printing money as well, up 151% during the period, the European Central Bank, 146%, and Japan, 83%.

That’s a lot of money-printing.

But take heart, because while the currencies of all those countries are absolutely, 100% fiat – redeemable in nothing but more of the same paper – the world’s central banks are said to have huge reserves of gold bullion. The U.S., U.K., the euro zone, Switzerland, Japan and the International Monetary Fund report having gold reserves of 23,349 tons among them.

Central banks of the world’s terminally indebted countries prefer the fiction that paper money that’s printed at little cost, or digital bookkeeping entries that are created at no cost, is money and therefore constitutes real wealth. However, there must be a reason that central banks universally hold gold reserves.

They don’t hold pork bellies.

At this point, Eric Sprott, of the estimable Sprott Asset Management, enters the discussion, asking some inconvenient questions. Because something about the gold numbers – supply and demand – doesn’t seem to add up.

Here’s the mystery in brief, from the Sprott report called, “Do Western Central Banks Have Any Gold Left???”

New mine supply of gold this year is estimated to be just under 2,700 tons. But gold demand, growing rapidly over the last 12 years, amounts to an additional 2,268 tons of new gold demand a year today that didn’t exist in 2000.

That number was derived from the buying of just five sources: non-western central banks (Russia, Turkey, Kazakhstan, Ukraine and the Philippines), the mints of the U.S. and Canada, ETFs, and Chinese and Indian consumption.

This increase in gold demand seems to actually understate the matter, since it doesn’t include huge private investment purchases of physical gold from around the world. For example, Sprott cites China’s Hong Kong gold imports, expected to reach 785 tons this year, as just one additional source of net investment that sees real total demand exceeding new mine supply.

But the private investment demand amounts to much more than the Hong Kong gold imports he cites.

Other substantial purchases of physical bullion include those by hedge funds and other institutions (the University of Texas endowment fund alone purchased and took delivery of $1 billion of physical gold in 2011), as well as purchases by Russian plutocrats and Persian Gulf petrocrats.

The bull market in gold has, after all, been a global event.

In short, Sprott concludes there is a big discrepancy between real physical gold demand (own any gold bars yourself? If so, they don’t show up in the demand numbers!) and the purported supply.

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