Silver Stock Report
by Jason Hommel, February 16, 2007
There is a major event taking place in the gold world right now that has gotten little attention so far, that may cause the gold price to perhaps more than double in the next 12 months. The IMF may be admitting that GATA is right! The IMF may be deciding that they want to actually know how much physical gold the central banks really have left.
GATA, the Gold Anti-Trust Action Committee (gata.org), has been fighting for transparency in the gold markets, for years now. Among other things, GATA complains that the International Monetary Fund allows its member central banks to report their gold holdings and their gold out on loan as one item, not as separate items. As a result, the world does not know how much central bank gold has been leased into the market and how much really remains in the vault.
There are basically two groups who have tried to estimate that so far. On one side is the World Gold Council (WGC), a body that is set up by contributions from mining companies, theoretically to promote gold, but they do an awful job. The WGC says that only about 5,000 of the claimed 33,000 tonnes of central bank gold has been leased into the market.
On the other side is GATA. GATA claims, through several independent methodologies used by different researchers, that probably more than 15,000 tonnes of central bank gold has been leased into the market. Most of that gold has probably been sold in India and made into “monetary jewelery” that is no longer available to the financial houses that have shorted the central banks’ gold into the market.
The implications are staggering. The world’s gold mines produce only about 2,500 tonnes of gold annually, adding just under 2 percent per year to the total supply of gold, estimated at 150,000 tonnes mined since the dawn of mankind. The market trades about 5,000 tonnes of gold each year, and about 1,500 tonnes of that has been central bank gold coming to market via leasing, if GATA is right.
If GATA is right, then when the central bank gold is exhausted, as it must be eventually — and faster if other central banks start buying such as in Russia, China, South Korea, South Africa, Argentina, and other countries — the supply and demand dynamics of the gold market will change dramatically! …and the price will soar.
China alone has $1 trillion of foreign exchange reserves. If China diversifies a mere 5 percent of that into gold, that would be $50 billion, which, at $670/oz., is nearly 75 million ounces. At 32,152 ounces per tonne, that would be 2,300 tonnes, nearly as much gold as the world’s mines produce in just one year.
Discussion of how much gold has been loaned has been one-sided, as noted by John Embry of Sprott Asset Management. GATA has evidence, and most nay-sayers simply have not done the research to have anything credible to say to the contrary.
Does the IMF really allow central banks to report physical gold and gold out on loan as one item? In recent years several central banks have admitted that this is the case, such as the central banks of the Philippines and Portugal.
But now even the IMF seems to be wondering how much gold its member central banks have left.
This following bombshell news item was released a few weeks ago by AME Info, a news organization in the Middle East, and brought to my attention by GATA. The headline? “IMF Gold Trading Rule Changes Are Set to Boost the Gold Price.” (http://www.ameinfo.com/108894.html)
The IMF is now considering asking the central banks to report physical gold and leased gold in separate categories. This could settle the issue.
Has the IMF just realized how right GATA could be? Does the IMF need to know how little gold its member central banks have left? In today’s world, the IMF’s 3,500 tonnes of gold could be purchased by China in a single transaction.
The IMF’s rule change could be the biggest change in the gold market in the past 36 years, since 1971, when the United States decided to stop redeeming paper dollars for gold on world markets.
Go to GATA.org to research this further.
As always, I’m even more excited by the prospects for silver, than gold. If you would like to see how I’ve prepared my investments for the upcoming rise in the prices of gold and silver, take a look at my portfolio.