Adrian Douglas: GFMS cooks books to make gold look bad

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By Adrian Douglas
Wednesday, August 19, 2009

"Global consumption fell 8.6 percent to 719.5 metric tons from a year earlier, the London-based industry group said in a report today. That's the lowest level since the first quarter of 2003. Jewelry demand declined 22 percent and electronics, the biggest industrial use for gold, slid 26 percent."

This sounds pretty dire, doesn't it? This means that global demand for gold fell 67.7 tonnes.

But wait a minute! There is this little gem. ...

"Central banks bought 14 tonnes of gold more than they sold, the first quarterly net purchases since at least 2000, according to the council, based on figures from London-based research company GFMS Ltd. The so-called official sector had net sales of 69 tonnes in the second quarter last year, the report said. Wozniak said GFMS wouldn't identify any of the buyers. Central bank purchases aren't counted in the 719.5 tonnes of total demand because they are considered a traditional source of supply, she said."

You have got to be kidding me! Net buyers aren't counted as demand because traditionally they are sellers!

That is just the most contrived reporting to come up with the negative gold news GFMS always wants to produce. This means that the change in demand from the central banks, going from selling a net 69 tonnes to buying 14 tonnes, is a positive difference of 83 tonnes. This means that global demand for gold increased by 2 percent, instead of declining 8.6 percent.

Now why would an industry group that is supposedly meant to be a pro-gold advocate want to turn a 2 percent growth in demand to an 8.6 percent decline?

We can rule out an honest mistake because this is the ultimate in dishonesty: ignoring central bank demand. It is not the first time either. GATA has long criticized GFMS for its reporting of gold market statistics, particularly with respect to its ridiculously low gold loan numbers. GFMS failed to report the 450 tonnes of gold accumulated by China over the last five years, while GATA had sources that revealed not only the buying but the quantity as well.

But this is not the only nonsense in GFMS statistics. There also is this:

"Other such sources showed gains, including a 6 percent rise in mine production from the second quarter of 2008, and a 21 percent jump in recycled metal, the report said."

A 6 percent increase in mine supply? Here is the news from the third-biggest gold producer in the world, South Africa:

http://www.dispatch.co.za/article.aspx?id=337268

"In June 2009 the country's gold output fell 12.2 percent compared with the same month last year. South Africa is the world's third-largest gold producer, behind China and the United States."

China's production did increase by 13 percent. However, although South Africa is the third-biggest producer at 220 tonnes, it is not far behind China, which produces 280 tonnes. So this means that gains in China's gold production are roughly offset by declines in South Africa's. So where did 6 percent total worldwide gold mine output growth come from?

Newmont Mining, the world's biggest gold mining company, increased production by a meager 1.2 percent, while Anglogold Ashanti saw a 10 percent and reduced hedges by 1.4 million ounces in the quarter, which further reduced supply to the gold market.

A 6 percent growth in gold mine output is a fabrication.

The gold price has been suppressed by the gold cartel such that the price is at or below the cost of production. This is not an incentive to grow; it is the exact opposite.

GFMS has a hidden agenda and deliberately misreports gold market information. Could the firm's motivation possibly be aligned with the gold cartel? It would be interesting to know who funds GFMS' research.

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Adrian Douglas is publisher of the Market Force Analysis letter (http://www.MarketForceAnalysis.com) and a member of GATA's Board of Directors.

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