Two Gold Charts Western Central Banks Are Worried About

There’s been a significant trend change in the gold market and it has the Western Central Banks worried.  Before the collapse of the U.S. Investment Banking system in 2008, annual net physical gold investment was negligible.  However, the present situation has changed considerably, putting severe stress on Western Central Bank policy makers.

Prior to 2008, many Central Banks (mostly Western) were net sellers of gold into the market.  This official Central Bank policy was designed to keep the gold price from moving up higher.  According to the figures from the World Gold Council, from 2003 to 2009, net sales of Central Bank gold totaled 2,846 metric tons (mt), or 91.5 million oz (Moz):


Central Bank gold sales peaked in 2005 at 663 mt and accounted for 21% of total demand that year.  What would have been the market price of gold if the Central Banks didn’t dump 91.5 Moz over the seven-year period (2003-2009)?

Then something changed in 2010.  As the United States and other Western Central Banks (Japan & then the EU) continued their massive QE (Quantitative Easing – money printing) policies, Eastern and various Central Banks became net buyers of gold.

Net Central Bank gold buying started at only 79 mt in 2010, surged to 625 mt in 2011 and is estimated to be 588 mt for 2015.  Again, the majority of Central Bank gold purchases were from Eastern governments, especially in 2015.  Russia and China accounted for majority of Central Bank gold purchases last year.

What a trend change… aye?  From 2003-2009, Central Banks dumped 91.5 Moz of gold into the market.  However, this totally reversed as Central Banks were net buyers, acquiring 94 Moz of gold from 2010-2015.

Net Physical Gold Investment Has Western Central Banks Worried

While Western Central Banks dumped gold onto the market to suppress the price, Eastern Central Banks are doing the opposite.  Thus, Eastern Central Bank gold purchases have put more stress on “Net Physical Gold Investment.”  I say physical gold investment as I have excluded changes in Global Gold ETF inventories.  While Gold ETF’s are a gold investment vehicle, there is speculation that some (or a large percentage) of the Global Gold ETF inventories may be fictitious or oversubscribed.  By the term oversubscribed… it refers to the notion that there are more than one owner for each ounce.

To get an idea just how significant the trend change of net physical gold investment has been over the past several years, I created the chart below:


Basically, I took total physical Gold Bar & Coin demand for the year, subtracted or added Central Bank net purchases and divided it by total demand.  In 2003, total world Gold Bar & Coin demand was 304 mt and Central Bank gold sales were 620 mt for a net decline of total physical gold investment of 316 mt for the year.  Thus, net physical gold investment for 2003 was a negative 12%.  Which means, there was a 12% net disinvestment of physical gold in 2003.

I know this may sound a bit obtuse, but Central Bank gold sales are a liquidation of Central Bank reserves.  Furthermore, most of this Central Bank gold sales were used to supplement the overall market including Jewelry, Bar-Coin and Technology demand.

For example, here is the breakdown for 2003:

2003 Global Gold Demand

Jewelry = 2,484 mt

Technology = 386 mt

Bar & Coin = 304 mt

Total = 3,174 mt

Central Bank sales = -620 mt

Total Demand = 2,554 mt

Even though total world gold demand was 3,174 mt in 2003, Central Bank sales of 620 mt had a negative impact and lowered overall demand down to 2,554 mt.

As we can see from the chart above, net physical gold investment was actually negative or very low (2% in 2006) before the U.S. and World financial and economic markets collapsed in 2008-2009.  As Central Bank gold purchases increased after 2010, so did Gold Bar & Coin demand.

Let’s look at the peak year… 2013:

2013 Global Gold Demand

Jewelry = 2,673 mt

Bar & Coin = 1,706 mt

Central Bank = 625 mt

Technology = 354 mt

Global ETF change = -915 mt

Total = 4,443 mt

Here we can see that in ten years, there has been a significant increase in Gold Bar & Coin and Central Bank purchases.  In 2003, net physical gold investment (Bar & Coin – Central Bank sales) was a negative 318 mt versus a positive 2,331 mt in 2013.  Thus, net physical gold investment in 2013 accounted for a record 52% of total demand.

NOTE:  I did not use changes in Global Gold ETF’s in creating the “Net Physical Gold Investment” in the chart above, but I did use the total demand figures from the World Gold Council which were adjusted due to builds or declines of Global Gold ETFs.

Why is this so important?  Before 2008, net physical gold investment was minuscule or actually negative when we factor in Central Bank gold sales.  Even if we took total Gold Bar & Coin demand of 304 mt in 2003 and divide it by total demand of 2,594 mt, it would only equal 12% of total gold demand that year.

Regardless, Central Banks dumped gold onto the market to suppress the price and help supplement the market.  Now that Eastern Central Banks are net buyers of gold as well as the elevated Gold Bar & Coin demand, total net physical gold investment is consuming nearly 40% of total demand compared to the single digits prior to 2008.

Western Central Banks realize the price of gold determines demand, which is why they had to resort to knocking the price down from $1,600 to $1,150 at the beginning of 2013.  Even though demand picked up significantly in 2013, there was available stocks to loot from above ground stocks such as the GLD ETF to meet this demand.

However, I believe the real Western Central Bank strategy was to continue slowly pushing the price down lower to keep gold off the RADAR from the Main Street Investor.  There is speculation that China may be apart of the market rigging of gold, but it’s to their benefit in the long run, not the Western Central Banks.

There is one thing that I have not factored into the equation.  A lot of global jewelry demand is by Indians.  India consumed 654 mt of gold jewelry in 2015.  I would imagine most of this would be considered a “Store of Wealth”, rather than something used for adornment purposes only.  Yes, it’s true that the Chinese (and to lessor extent, Americans) purchased a lot of gold jewelry in 2015.  And yes, this gold can be sold back into the market at close to spot price if the owner is clever.

That being said, Indians view gold jewelry more as a store of wealth, than do the Chinese or Americans.  While some Chinese may be buying gold jewelry as a store of wealth, more Chinese have become like Americans and enjoy wearing gold more as adornment purposes.

Lastly, we must remember, nothing has changed since Lehman Brothers and Bear Stearns went bankrupt in 2008.  The situation in the financial system is much worse than it was in 2008.  I hear from several precious metal dealers that the wealthy investors are buying a lot of gold since the price spiked 5% in one day last week.

I believe 2016 will turn out to be an interesting year for the precious metals.  Today, the price of gold is up $30 at $1,238.  While the bullion banks continue to control the paper price, the new ABX fully allocated precious metal exchange will likely cause some real trouble for the Western Central Banks.

It wouldn’t take much of an increase of physical gold investment buying to totally overwhelm the market.  Keep an eye out for possible fireworks in the precious metal markets this year.  If this occurs, there is a good change that it may become impossible to acquire physical gold and silver.

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23 Comments on "Two Gold Charts Western Central Banks Are Worried About"

  1. “That being said, Indians view gold jewelry more as a store of wealth, than do the Chinese or Americans”.

    All the Indians I know wear gold jewelry; if just a ring [men]. It is usually more attractive artisan-ship than most jewelry. And with the exception of 18k men’s rings, it is 22k…91.6% pure. Same as the Krugerrand, American gold eagle, and British Sovereign.

  2. If the central banks are selling gold, then someone is buying gold. Why wouldn’t the buyer’s purchase of central bank gold be considered investment demand?

    • S,

      That depends on what was purchased. If Central Bank Gold sales became mostly Gold Jewelry demand, then no… it wouldn’t. And it looks like a lot of Central Bank Gold sales went to supplement the overall market, not really investment demand.


  3. Where do you base upon that central banks are buyers of gold? If you look at the figures of the WGC and IMF you’ll see that from after the end of WWII not much has changed for the total of all central banks. Shifts in holdings of the various countries do take place that’s for sure, but it was then around 30.000 metric tons (30 thousand) and it still is within limits of about + 10% tot -10% approximately. I’m aware that leased and physical gold could be accounted for as being gold possessions – a ‘oneliner’ on the balance sheets.
    I have to admit that the figures of the WGC and IMF are probably not a reflection of the real situation. And I doubt if there is anyone who really does know.

  4. And what happens to the price of gold if the central banks repeat their actions from 2003-2009 and why wouldn’t they?

  5. All is well and good Steve. If what you say is true about gold,and silver i.e. mine closings, production
    costs exceeding “spot price” and on and on, how can I buy APMEX one ounce coins on eBay for
    $16.00 and they accept credit cards, box it, insure it and pay the freight. My Credit Card discount
    is 1.5%. Why are these “big” sellers of silver selling coins at 30 cents over spot. That’s a ridiculous
    2% premium? If silver is going to rise in price, why aren’t these sellers stacking? Why sell silver
    and lose $3 to $7 an ounce when they could stack it for a month and make 10 times what they are
    making now? Morgan,Schiff, Butler and the rest of these gurus tell lies. Each of them sells silver
    and their forecasts these past 6 years have all failed. I said it before and I’ll say it again. Silver will
    rise when demand exceeds supply even if oil goes to $10 a barrel.

    • You,are perfectly right on the strategy of PMs dealers. They told everybody that the prices woild go up when silver was $45. Then there was the cup and handle at about $25. After that the cartel manipulated the market bringing the prices down. Several Daya ago there was finally the trend reversal. However, until proved othervwse this is another bear market rally. One final big dip may be ahaed of us to scare small investors and buy the dip. We will see what happens as even the “pundits” admit they do not know the exact timing or the bottom. They advise to keep stacking ahead of a cataclismic event.

      • eva,

        I am beginning to see a picture here with your comments. Never a good word about the precious metals aye?? Always the negative twist…huh?

        A lot of Germans were killed and wealth destroyed listening to the NAZI lunatics. Sure, maybe for 10-15 years riding the NAZI LUNATIC PARADE did provide wealth and prosperity for many, but it came at a huge cost to Germans, Europeans and the death of millions of JEWS.

        So, if you want to continue your NEGATIVE PRECIOUS METAL RANT, it seems logical that you would likely be making the same comments to Germans who were speaking against the NAZI’s back in the day.

        Why don’t you wake up and do some of your own thinking, rather than BELLY-ACHING…. LOL

        You remind of the FICKLE PUBLIC. All BACK SLAPS when things are GREAT, but the first to criticize when it goes against you.


        • I will change my opinion if gold reaches $1300-1350 and the GS ratio index reverses.

          • eva,

            LOL…. you just proved my point. You say, “I will change my opinion if gold reaches $1,300-$1,350.” I see you put the word “IF” gold reaches $1,300.

            What a STUPID, LAME and SUPERFICIAL comment.

            Now I do see your true colors…”IF”

            LOL…. Steve

        • Talk about ranting, Steve. You print emails several times a week. According to you
          everything is falling apart. We have trillions of debt, no one has faith in the government, oil is below $30 and on and on. One country is importing gold another is selling. All your articles are pushing silver these past 5 years that I’ve known you. Yet, demand remains stagnant. Your audience doesn’t buy what you’re selling. Silver has a future if industry increases using it by 10%+ a year or so. Silver demand sucks even at $14. People want CASH not silver. Those that produce silver, according to you, are losing their butts yet I see no premium in silver at retail over spot. When will you finally get the message Steve? THERE IS NO DEMAND. People want cash not silver. Stacker’s only hope is that their grandchildren will see the increase by factoring in “time.” Silver will increase in value over the years. My guess is $50 in 2050. And my guess is more accurate than Butler, Schiff and Morgan and the rest of their cronies put together.

    • Joe Lindell,

      You remind me of someone with a BI-POLAR disorder. One day you provide positive comments about GOLD & SILVER, and then the very next day, negative comments.

      Investors with CHARACTER and BACKBONE, such as the Michael Burry portrayed in the movie, THE BIG SHORT made a huge investment against the MBS Industry. However, most investors in Burry’s Fund wanted to kill him because they thought he was wrong… he wasn’t. Once the Banks allowed the value of the CDS to rise, Burry’s fund made 240%.

      Unfortunately, for most people-investors they LACK CHARACTER, BACKBONE, and COMMITMENT to an idea or investment when times are rough. Joe, you will complain right up until the point the metals revalue to much higher prices. You fall into the FICKLE PUBLIC category.

      Well done… LOL.


      • Thanks for the comments Steve. I see negativeness in you also. And you should be ashamed referring to a movie. People in movies not only pretend to be something they are not but they speak what is written for them. They do not think, they act. Actors are an embarrassment. It is curious to note that you quote actors that live in fantasy land. Maybe this flaw has tainted your personal understanding of silver.

        • Joe Lindell,

          Me ashamed? Why? The movie was based on a book that is factual… LOL. Michael Burry is a real guy and what was portrayed in the movie happened in real life.

          Do yourself a favor and go by the book THE BIG SHORT. Maybe this will wake you up a bit.


          • It still is fantasy. That’s what acting is. The ability to differentiate fantasy from
            reality, could be the reason you think the way you do. Steve: No matter how
            you slice acting is pretending. They are not real. Why do I want to read a book
            when reality shows me what is going on for silver. Until demand really exceeds
            supply silver will languish regardless of many other extenuating circumstances. It may take another 20 years. When silver price rises to $20, for example, more mining will begin. A good research for you is to guesstimate via extensive research dealing with real data the amount of silver
            in the earth to mine and the costs going forward to do so. These facts are the contributors to supply and demand that will determine silver’s price.

          • MillenniumWright | February 21, 2016 at 11:58 am |

            Your analysis is great, you’re a numbers guy with a critical, mechanical mind. This is both a weakness and a strength. It is a strength because it allows you to look into data, and to see the data for what it is and how it will affect the system.

            Now here is the weakness part: when you need to integrate emotion, it throws off your mechanical models. Whether consciously or not, you perceive Moral Truth in data and mechanical systems. This is why central bank and institutional manuipulations piss you off so much, because they are trying to short-circuit a perfectly moral system. They are trying to get something for nothing, and we all know the result of such behavior. *Eventually.*. This is also why it’s hard for you to make predictions about timelines: it’s difficult for you to perceive how corrupt the institutions are willing to behave in order to hold it all together for one more go-round.

            Just like for the characters in the The Big Short, this is going to take a little longer to unravel than we thought. If we put all our money on one bet, we are gonna get squeezed for a while. In fact, this year I think you will find in retrospect, is going to be the setup for the greatest bear trap in history in equities markets. Gold and silver are going to start to run, as things get more volatile. If you’re in physical you’re pretty safe. But there is going to come a moment when everyone thinks the stock market is about to truly collapse, and a lot of people are going to go into short positions. And then the institutions are going to pull out a wildcard and drive it up a little, somehow. When that happens, all the international money fleeing globally collapsing markets is going to come to America, and start a rally that is positively vicious. The shorts will lose their shorts, and drive it higher trying to cover.

            After that, in the wild and heady moments following the last, great American Bubble, when everyone is partying like it’s 1999, *then* the collapse.

            But there is still too much wealth out there, right now, that needs to be pillaged.

            When you engage people like in the comments above, and stray from the data into issues of emotion, perception, and other more subjective realms, it clouds your ability to discern. I would recommend against it, from a business standpoint.


    • ” Morgan,Schiff, Butler and the rest of these gurus tell lies”


      These guy’s stack as well. .sure they may sell but it’s difficult forecasting annual CORUPTION!

      These gurus you mention have helped me on my path to understand the metal markets. They have been ridiculed & laughed at by the mainstream/financial media…most of the time their economic forecasts are close. I consider these men very honorable and very much like watchmen..

  6. Hey Steve, thx for the great work. Might you have any idea when the RCM will post last year sales numbers on Maples

  7. I think the bad times are over.A pullback is possible because of the unlimited paper power off the FED.
    There is a resistance in gold at 1260$.But if we leave this one for some days i think we are in the new bull market.

    I always said the mineros are pre running.The upside potential in the last days was strong.
    Especially the big producer stock value.But even junior miner stock-values go up.

    The HUI proves it.

  8. Christoph Weise | February 20, 2016 at 2:29 am |

    The article is very interesting but unfortunately a bit difficult to read. A definition for “net physical gold investments ” (bar and coin investment + central bank inventory change ) should be provided right at the beginning. I had to read the piece several times to figure out what it is about.

    • Christophe,

      Thanks for the comment. Yes, you are probably correct. I should have made it easy to understand in the beginning what ‘net physical gold investment” was. Sometimes I forget that the reader can’t read my mind.


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