Dark Gold

 Posted by at 9:09 am  Stocks
May 122015
 

The gold market is often referred to as being “opaque”, lacking transparency. This is something of an understatement. The chart below is something I worked with Nick to put together. It shows all of the publically reported holdings/stocks of gold.

Transparent Gold

It is an extensive list and much wider in scope than many others, which usually just add up the major ETFs. The first thing that strikes you is the dominance of the ETFs in terms of traditional stores of gold like COMEX or TOCOM. I have no doubt that if the ETFs weren’t created the blue COMEX stock in that graph would have been a lot bigger.

Also striking is the huge drop off in 2013 from over 100 million ounces down to today’s 67.2 million ounces. At first glance this looks bad, like people don’t want gold, but the chart is only showing the preferences of the specific type of people who invest in these products (mostly Westerners). It is not like the gold was just thrown away, and import/export analysis does show that gold ex-ETFs has been imported into Switzerland from the UK, made into Kilo bars and then sold into China and India.

In the end, the amount of gold stays the same, it is just the ownership of the gold that changes. This ownership change does have some information value, as I discussed here, and while I will comment on what is going on with these visible stocks from time to time, it is worth putting the chart above into context.

The latest GFMS Gold Survey estimates the total amount of gold mined since ancient humans were first attracted by the “tears of the sun” at 5,902,877,700 ounces or 183,600 tonnes, which they say is currently held by the following groups:

Jewellery – 2,797,115,250 oz
Investors – 1,183,147,600 oz
Central Banks – 993,458,175 oz
Industry – 803,768,750 oz
Unaccounted For – 125,387,925 oz

So the 67,213,000 ounces of “transparent” gold represents only 1.1% of all gold or 5.7% of all the gold held by investors. The chart below demonstrates the relative insignificance of the transparent gold – the little blue bump at the bottom is Nick’s chart above.

Gold Stocks

When it comes to gold held by investors, Dark Gold dominates. While a lot of this dark gold is held privately, much of it would also be held in vaults operated by the major security firms like Brinks or G4S or run by bullion banks. Knowing what is going on with the gold in these vaults would give the operators some information advantage in the market. We, however, can only guess at what total stocks sit in these vaults (although Warren James is giving it a go with his analysis of ETF bar lists, see here for how he does it).