ECB Gold Data Feeds Suspicions of Market Manipulation

Monday, April 05, 2010

Noticing an increase in investigative stories concerning manipulation of gold prices with paper contracts on the world's futures exchanges that sound plausible this blogger took a closer look at the EUropean Central Bank's (ECB) gold data, only to arrive at a conclusion that feeds these suspicions.
With the extended Central Bank Gold Sales Agreement (CBGSA) annual gold sales have been limited to 500 tons per year from 1999 to 2009. This ceiling has been lowered to 400 tons per year last September.
ECB data show that slowing central bank sales undershot this ceiling by a wide margin in the last 10 years. Overall Eurozone central banks sold a mere 55.6 million troy ounces of gold or 1,729 metric tons since December 1999 while the CBGSA would have allowed sales of 5,000 tons in this period.


GRAPH: Are central bankers good asset managers? The Eurozone management of central banks gold holdings raise doubts. Why did central bankers continuously sell the best performing asset of the past 4 decades? Although Eurozone central banks sold 55 million troy ounces or 1,729 metric tons - equalling 13.8% of total holdings - of gold in the last 10 years, the Eurozone's gold stash rose 130% in Euro terms. Show me another market sector with this performance. Data: ECB (Click to enlarge)

I recommend to download this simple spreadsheet (.xlsx) with ECB gold data since December 1999 in order to better comprehend my reasoning. These figures by country show that Eurozone central banks stopped selling gold in 2007 and make one wonder where the 2,000 tons gobbled up by Indian investors since then came from. Indians are the single biggest group of bullion buyers and has seen annual demand rise from 200 tons to 500 tons in the last decade.
In 2008 world gold production was down 13% to 2,260 tons from its 2001 peak of 2,600 tons, date from the US Geological Survey show.
Chinese gold production rose by 11.34% in 2009, to 313.98 tonnes, according to statistics released by the China Gold Association. The largest gold producer in the world hoards most of its domestically mined gold.
Putting this data in context with markedly higher gold price volatility since 2007 raises the question whether central bank gold sales result in anything other than short term price changes. In stark contrast to normal market behaviour, where the seller wants to get the highest price possible, central banks certainly left a lot of money on the table by pre-announcing their sales, re-announcing them while at it and telling it the public a third time after the fact.
One is also left in the dark about gold leasing or swaps. Both the ECB and its members only publish raw data, omitting any information that could shine a light on continuing allegations that central banks sit on far less bullion than the official figure of some 30,000 tons (pdf).

GRAPH: ECB figures show that Eurozone central banks have done a terrible job concerning capital preservation in the past 10 years, selling 13.8% of the best performing asset (GOLD, which rose 240% in Euro units in the same period.) Note that Eurozone central banks preserve remaining gold hoards since 2007.(Click to enlarge)

Following the recent discussions around GATA's appearance at a CFTC hearing and the revelations of former gold trader Andrew Maguire (+ more links), whose precise forecasts about a takedown of the price of gold after NFP figures in February were ignored by the CFTC I am led to believe that a massive squaring of paper gold positions and the resulting short squeeze will lead to a melt-up in the yellow metal at a not too distant point in the future.
As after every bubble based on fiat money and exploding debts gold will be en vogue again. It was never different in the last 6,000 years. Euro, dollar and Sterling are all doomed to go the same ways as all fiat currencies in the last 300 years. There is no such thing as floating currencies. They are only sinking at different speeds vs. gold.

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