Guest Post by Jesse
Ronan Manly has published a fascinating analysis of the LBMA gold refining statistic today.
The gold refined by LBMA ‘good delivery’ refiners in Switzerland is sometimes involved in converting existing gold bars into kilobars suitable for export to the Asian Markets.
Ronan Manly offers quite a bit of detail with regard to a very large revision in the LBMA 2013 refining data and suggests that such a large restatement of gold statistics, almost 1/3, without explanation, seems odd.
The supposition is that the LBMA originally counted gold bars that were taken from existing sources, such as their own stores, ETFs, and the Bank of England and re-refined into kilobars for delivery into Asia. They later restated the number lower by 2,200 tonnes. We have not been given the exact reason for this, but one suggestion is that the gold did not come from new mining or traditional recycling.
Depending on how the GFMS and the WGC uses the statistics and sources, this could result in a significant (~2,200 tonnes) understatement of the flow of gold from Western sources into Asia in just one year.
What is the LBMA policy decision here, and what about subsequent years of 2014 and 2015?
What is the source of this gold? And what is so special about 2013?
The one thing that seems significant about 2013 is that the price of gold was hit rather hard by selling, and the total amount of gold held in Western depositories and ETFs dropped considerably with that hit in price. A chart is included below for your convenience.
So far we have more questions than answers. Perhaps more information will be forthcoming. I am given to understand that the LBMA is not open to discussing the matter.
I have my own hypothesis. There was a major effort to hold back the price of gold in 2013, resulting in a huge spike in physical demand from China.
‘Stopgap measures’ were taken to meet that physical demand without allowing the price to increase.
As more and more gold was shaken loose from various sources, a campaign of stifling Western interest in gold was undertaken to permit even more gold to be taken out of ETFs and repositories.
However, the demand from China and India were not passing events. And so the stopgap measures have turned into an ongoing shuffling of existing resources to try and keep the price of gold from running higher, and threatening some of the bullion banks and institutions who cannot possibly replace what has been loaned out and sold at anything near today’s prices.
Or it *could* be something else entirely. Time will tell I am sure. But I think that there are now two events that might be remembered as potentially pivotal: one in 2007 in which the world’s central banks became net buyers of gold for the first time in about thirty or more years, and 2013, in which the flow of gold from West to East put the Gold Pool into unsustainable endgame from which it could not recover without allowing prices to eventually run higher.
Ronan Manly suggests that he will have a follow up article explaining his own analysis, and I will defer to his more informed judgement and wait to see what he says. I do not have all the information and a few things still puzzle me a bit. But I do congratulate him on finding this and writing it up so well with so much thought.
For the detailed analysis about what happened read the entire piece Ronan Manly, The LBMA’s shifting stance on gold refinery production statistics
This is a quote from his article:
“There are 2,200 tonnes of 2013 gold refining output in excess of combined mine production and scrap recycling being signalled within the 6,601 tonnes figure that was removed from the LBMA’s reports on 5th August 2015.
Could it be that this 6,601 tonne figure included refinery throughput for the huge number of London Good Delivery gold bars extracted from gold ETFs and LBMA and Bank of England vaults and converted into smaller gold bars in 2013, mainly using LBMA Good Delivery Swiss gold refineries? And that maybe this 6,601 tonne figure stood out as a statistical outlier for 2013 which no one wanted to talk about?
The objectives of HM Treasury’s Fair and Efficient Markets Review (FEMR) include transparency and openness. It would appear that altering already published gold refinery statistics, especially for 2013, seems not to be in the spirit of these FEMR objectives.
Part 2 of this analysis of the LBMA’s 2013 gold refinery statistics looks behind the 6,601 tonne number at the phenomenon of Good Delivery bars being processed through the Swiss gold refineries in 2013, the gold withdrawals from the London-based gold ETFs, and the huge shipments of gold from the UK to Switzerland in 2013. Part 2 also examines the 2013 withdrawal of gold from the Bank of England, and how GFMS and the World Gold Council tried to, or tried not to, explain the non-stop processing of Good Delivery gold bars into smaller finer kilobars during 2013.”
Some really strange events have happened with gold in the past few years. This is why it’s paramount to own physical gold, not paper claims on gold. The only non-physical gold based asset I would consider owning would be gold or platinum miners with good internals. Sure it pays no dividend, but gold can’t be printed, only mined, which takes money and resources. It doesn’t corrode rapidly, and holds value well.
Some of the stranger events that have happened recently: A couple years ago, a bank in Europe liquidated it’s customers’ physical gold holdings, only after the fact telling them and paying them at market value (likely much lower than what it could fetch at auction). Last year I also recall reading a history of the Fort Knox gold reserves. Apparently it was never actually audited (A third party is required for auditing), but one of the internal “audits” mentioned that one of the bars that was partially melted for testing showed that it was substantially under purity. What happened? If I recall correctly, it was discarded from the final results, instead of raising a giant red flag that the lot it was in should be called into question and analyzed with great scrutiny. Germany, among others, have asked for their gold to be repatriated. It is taking an exceedingly long time, suggesting that Fort Knox and London are having difficult times gathering enough gold to meet even the smallest amounts of gold for their clients. Kyle Bass helped bring back gold owned by the University of Texas. He observed how they collected the gold, and noted that it wasn’t all stored in the same area, but seemingly scattered all over the place, mixed in with different lots.