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Randgold to challenge AngloGold for Ashanti
By James Turk
One of the objectives of my alerts at GoldMoney.com
is to spread the truth about gold. When I see
something that needs correcting, I'll bring it to
your attention. Accordingly, I would like to correct
the following dispatch from Reuters:
* * *
KALGOORLIE, Australia, Aug. 5 (Reuters) -- Central
banks worldwide sold a combined 280 tonnes of gold
in the first half, the same as the first half of 2002, but
still hold enough to match global demand for nearly a
decade, researcher Gold Fields Mineral Services said
The 15 central banks in Europe which agreed in
September 1999 to limit combined sales to 400 tonnes
a year, accounted for 80 percent of the sales between
January and June, Gold Fields analyst Tim Spencer
told Reuters. But the sales hardly made a dent in central
bank caches of the precious metal. quot;The banks still hold
32,200 tonnes of gold,quot; Spencer said....
* * *
In fact, central banks do NOT hold 32,200 tonnes of gold.
They hold far less. How much less is a hotly debated.
There are two camps. Here is an excerpt explaining
these two points of view, which is taken from my recent
report in the Freemarket Gold and Money Report, entitled
In recent years several efforts have been made to overcome
the inadequate reporting of central banks in order to
determine the weight of gold dishoarded from their vaults.
Many people continue to accept the results prepared by
Gold Fields Mineral Services, which have generally stated
that around 5,000 tonnes have been removed from central
But I dismiss this number because GFMS surveys do not
capture the weight of gold borrowed by commercial banks
to fund their national currency assets, and my assessment
is that this weight of gold represents the largest portion
of gold loaned out by central banks.
Consequently, I have relied upon the work completed by
Frank Veneroso and Reg Howe. Both of them have used
a different methodology to reach basically the same
conclusion -- that some 15,000 tonnes of gold have been
removed from central bank vaults through lending and
other forms of credit extension, such as swaps.
Frank Veneroso determined this number from a
supply-and-demand perspective using various historical
analyses, levels of economic activity, and other statistics.
Veneroso's most recent report, quot;Gold Derivatives, Gold
Lending, Official Management of the Gold Price, and the
Current State of the Gold Market,quot; has been posted by
Howe has concluded that the weight was 15,000 tonnes
by analyzing the derivative activity of banks that is
reported by the Bank for International Settlements.
See the article posted on his Internet site, quot;Gold
Derivatives: Moving Towards Checkmatequot;:
In short, depending upon which of the two camps one
falls into, central banks hold only some 17,000 tonnes or
27,000 tonnes of gold, not 32,200 tonnes.
In my view, 17,000 tonnes is the more accurate number,
but here's a curious irony. Mr. Spencer, who according to
the Reuters article works for Gold Fields Mineral Services,
didn't even get their 27,000 tonnes number right.
Whether the number is 17,000 tonnes or 27,000 tonnes
or 32,200 tonnes, it sounds like a lot of gold, doesn't it?
And that is how gold bears like to use this number -- as
a means of intimidating gold buyers. By referring to this
weight of gold, it helps to portray central banks as a
force to be reckoned with in the market, which is an aim
that serves the purpose of gold bears and central banks
But there is no reason to be intimidated by what central
At $350 per ounce, the price of those 17,000 tonnes is
only $191 billion. Bill Gates, Paul Allen, Warren Buffett,
and a couple of their friends could put together the cash
to quot;take outquot; the central banks.
Or look at it this way. There is about $30 trillion of national
currency now circulating in the global economy. Let's
assume that people around the world start getting nervous
about the financial uncertainty we all face today and start
converting some of their national currency into gold for
safety. Let's further assume that enough people get
nervous so that 1 percent of the purchasing power of
national currency goes to gold.
Well, that meager 1 percent represents $300 billion in
purchasing power, which is a value some 57 percent
greater than all the gold held by central banks.
Imagine the impact on the price of gold as people move
from national currency into the safety of gold.
So the next time some gold bear or central banker starts
talking down the gold price, just quietly smile and
continue to accumulate gold.
James Turk is editor of the Freemarket Gold and Money
Report and proprietor of GoldMoney.com, where this
commentary first appeared. To receive his alerts by
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