Posts Tagged ‘GFMS’

Solving the Golden Cube Puzzle. GoldMoney Foundation puts it at 10% smaller

October 16, 2012 Leave a comment
Visualization of the Golden Cube by Deutsche Bank (Sep 2012) based on WGC data (166,500t above-ground, 51,000t below-ground)

Visualization of the Golden Cube by Deutsche Bank Commodities Special Report (Sep 2012)

An oft-cited gold trivia is that the volume of all gold ever mined in human history can be represented by a cube that sits neatly on a tennis court. How big exactly would that cube be, and does it really matter if its sides were 20m, 20.5m or 20.7m? James Turk of GoldMoney Foundation thinks it does.

The density of gold is 19.32 grams per cubic centimetre (gm/cc), which is equivalent to 19.32 tonnes per cubic meter (t/m3). The cube on the left would weigh 166,444 tonnes, which is close to Deutsche Bank’s estimate based on World Gold Council (WGC) data.

If the sides were increased to 20.7m, it would weigh in at 171,363 tonnes which is close to the widely reported Gold Fields Mineral Services’ (GFMS) estimate of 171,300 tonnes as at December 2011.

GoldMoney Foundation’s estimate based on a recently published study by James Turk assisted by Juan Castañeda concluded that GFMS has overestimated the cube size by 70 centimeters; Equivalent to 16,056 tonnes, or about $877 billion at $1,700 per ounce.

It is significant because that’s an over estimation of 10.3% or more than fve-times the current rate of annual production.

“The level of global physical gold stocks is important in the context of remonetization of gold, which is likely to become increasingly discussed in time, given the accelerating pace of monetary creation by central banks.” GoldMoney Research Director Alasdair Macleod.

The conclusion of their essay reads:

A. The size of the gold stock

Our estimate of the 1492 gold stock is 297 tonnes, which is the calculation of Federal Reserve analysts Velde and Webber. Using this estimate as the starting point, we add to it the annual production data available from various sources, as explained in Appendix 3.

According to the World Gold Council, which is using Thomson Reuters data, the world’s gold stock as of December 2011 was 171,300 tonnes. Our research provides a reasonable analytical framework to suggest that the gold stock as of December 2011 is 155,244 tonnes, meaning that Thomson Reuters GFMS overestimates the existing stock by 16,056 tonnes, or 10.3%.

Given that data provided by the World Gold Council is usually taken as the principal reference on this matter, we conclude that a general perception exists which overstates the current gold stock. The amount of the overstatement is more than fve-times annual production, and at the current price of $1,700 per ounce has a nominal value of $877 billion.

B. The importance of the gold stock

The 155,244 tonnes comprising the world’s gold money stock is gold’s M3. Changes in it compared with the supply of national currencies facilitate comparisons of relative purchasing power as explained by the quantity theory of money.

These comparisons show that gold maintains its purchasing power over time because the gold stock expands in a disciplined way, with the result that its annual percentage increases are remarkably similar, even over hundreds of years. These fairly consistent annual rates of growth are the goal of Milton Friedman’s “k-percent rule”. Thus, the quantity theory of money explains why gold maintains its purchasing power over long periods of time.

In contrast, the stock of national currencies is volatile. Increases/decreases in annual growth rates are the result of man-made factors that cause this volatility in the money stock, which result in fuctuating price levels and the erosion of purchasing power.

C. Gold is money

Even though it does not actively circulate as currency anymore, gold continues to fulfl two important functions of money. It is useful in economic calculation, and it preserves purchasing power over long periods of time.

Gold is not a consumable commodity. Like the dollar, euro, pound and other monies, gold has purchasing power, which can be used to acquire goods and services. Thus, gold’s value arises from its usefulness as money.


Further reading:
The Aboveground Gold Stock: Its Importance and Its Size - Complete essay
Deutsche Bank 18 September 2012  Commodities Special Report
Thomson Reuters GFMS Gold Survey 2012

For the first time in history, private investor holdings now exceed official-sector holdings

April 14, 2011 Leave a comment

BullionVault | Adrian Ash

Physical Gold Investment prices in London’s wholesale market recovered half of this week’s near-2% drop on Wednesday, touching $1462 per ounce as global stock markets ticked higher and government bonds eased back.

Brent crude oil rallied to $121 per barrel after falling 6% in two trading days, as Kuwait suspended oil exports due to sandstorms, and Libya’s new “contact group” of politicians called for Colonel Gaddafi to quit Tripoli.

Silver Bullion held above $40 per ounce – and rose against non-US currencies – as the Dollar edged the Euro back down from new 15-month highs.

“For the first time in history, private investor holdings now exceed official-sector holdings,” said Philip Klapwijk – executive chairman of precious-metals consultancy GFMS – at a presentation in London’s Canary Wharf today, commenting on last year’s strong physical Gold Investment demand.

Launching GFMS’s new Gold Survey 2011, he said that privately-owned Gold Bars and coin today account for 19% of the world’s above-ground stocks, estimated at some 166,600 tonnes.

Despite a small net purchase in 2010 – mostly due to regular purchases by Russia – central-bank and other official holdings account for 16%.

Just over half exists in the form of jewelry.

“We are in a continued bull market in gold,” said Klapwijk, pointing to the sharp rise in prices against all currencies. Looking ahead, “The economic backdrop will remain favourable” to Gold Investment in 2011 and potentially 2012, the GFMS chairman said.

Central banks the world over are “reluctant” to raise interest rates, Klapwijk noted, while “a continuation of loose fiscal policies…[also means] inflation expectations will be on the rise, supporting gold’s case. In particular, rolling debt concerns in Europe may infect the Japan and US, where Klapwijk believes it “possible” that Washington’s triple-A credit rating could be called into question by the end of the year. “As confidence in government paper starts to be challenged, that’s got to be good for gold,” Klapwijk said.

The US government will hit its current “debt ceiling” by July, he noted. The Federal Reserve’s current “quantitative easing” program of Treasury-bond purchases is scheduled to end in June. Bank of America Merrill Lynch today joined the chorus of institutions calling for US Treasury bonds to fall, advising clients to switch into equities. Long-term Treasury bulls Pimco – the world’s largest bond-investment manager – now holds a short position on US Treasury debt in its flagship Total Returns Fund. Ten-year US Treasury yields today ticked up to 3.51% as Washington prepared to auction $21 billion in new debt.

“We do wonder about the sustainability long-term” of such strong Gold Investment demand worldwide, Klapwijk warned in his London presentation today. Scrap supplies fell last year but Gold Mining output rose, says GFMS. New growth in jewelry demand came entirely from developing economies.

Second only to 2009′s record level, 2010′s Gold Investment flows equaled $66 billion. But “That’s still a relatively small weight of money compared with traditional assets” such as equities and bonds, said Klapwijk. In contrast with a fall in ETF trust-fund and Gold Futures demand, GFMS’s analysts reported “strong growth” in physical Gold Bar investment – especially in Europe and China – with a “continued tendency…for [Western] institutions to park long-term investment in allocated [physical] gold accounts.”

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