Sprott open letter challenges WGC/GFMS gold demand figures – by Lawrence Williams (Mineweb.com – October 23, 2013)

http://www.mineweb.com/

Eric Sprott, challenges the most generally accepted data on gold supply/demand and feels that analyst reliance on this severely impacts their predictions and thus the gold price itself.

LONDON (MINEWEB) – Strong precious metals advocate, Eric Sprott, thinks there is something haywire in the gold supply/demand statistics published regularly by the World Gold Council and relying on data compiled for it by Thomson Reuters GFMS. In Sprott’s view, and this is accompanied by his own research figures, the GFMS data is flawed – yet it tends to be the industry standard taken as the definitive position by gold follower around the globe.

In this context, Sprott has written an ‘Open Letter’ to the World Gold Council, putting forward his company’s own take on the real position in the gold supply/demand equation and draws the conclusion that global gold demand exceeds available new supply by a substantial margin. To read the ‘Open Letter’ in full click here.

Indeed Sprott’s analysis of the position echoes, and expands on, some of the conclusions drawn by Mineweb in some recent articles – not least in terms of the gold flows to Asian and Middle Eastern nations in general, and to China and India in particular. We wrote – in terms of Chinese and Indian demand virtually cornering the gold market as follows: “Meanwhile, there are the gold believers on the sidelines who may also have virtually unlimited pockets – the Chinese in particular – who must be feeling every day is Christmas as they rake in physical gold at depressed prices, convinced that at some day in the future, by when they will have completely cornered the physical new gold market, the yellow metal’s price will soar, while Western paper gold will become worthless with no physical metal to back it. As far as gold, and almost any other trade goes, the East looks to the long term, the West tends to look to tomorrow!

“And as for the East cornering the market in physical gold, they are getting awfully close to doing this already. Growing Chinese gold consumption is likely to account for close on 60% of new global gold production this year – and that is on the basis of already pretty well known figures – net Chinese gold imports through Hong Kong plus the country’s own domestic production, are together likely to reach well over 1,500 tonnes in calendar 2013. If, as many surmise, China imports gold also through other ports of entry, which it does not disclose, then this percentage could be higher still.”

Sprott takes this position rather further and suggests that if we look at ‘available’ new mined gold supply, the position becomes rather clearer – and even more favourable for the gold investor in that the world’s largest gold producer, China, and the World No. 4, Russia, do not export any of their new mined gold so the amount available to the world rather than being GFMS’s global annual gold production estimate of around 2,800 tonnes, which he does seem to be happy to accept, comes back to 2,140 tonnes (which may even be a slight over-estimate based on 2012 annual and year to date production figures) of the yellow metal actually available to meet all other global demand (including any Chinese and Russian imports).

For the rest of this article, click here: http://www.mineweb.com/mineweb/content/en/mineweb-gold-analysis?oid=209933&sn=Detail