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Gold’s got secrets

Prices for precious metals, along with just about everything else, depend on the relative levels of supply and demand plus available inventories.


In judging where gold and silver prices are likely to trend, investors and numismatists alike have an interest in knowing if there are current and likely future supply shortages or surpluses. Two consultancies that produce the most widely cited analyses of precious metals markets are GFMS (formerly called Gold Fields Mineral Services) and CPM Group (headed by Jeffrey Christian).

The periodic reports by these two entities can and do sway market activity and, therefore, prices. GFMS produces its yellow metal research to be publicized by the World Gold Council.

While such information is better than nothing, keep in mind that much of what is going on in the gold and silver markets is opaque. In other words, there are private and government actors in the markets that do not want their actions publicly known. Motives they also want to keep secret. Particularly suspect are the quantities of central bank gold reserves that may have been sold, leased, or swapped onto the markets.

Without full transparency, published information on supply, demand and inventories can be misleading.

Let me give you some examples.

The government of India (the nation whose people are generally considered to be the second largest gold consumers) publishes statistics of imports into the country of pure gold bars. In 2016, such imports fell significantly from 2015. Part of the reason was the government raised the import duties (taxes) on such imports. There have been published reports that gold demand in India, as a result, has declined. That may or may not be true.

First, because taxes are imposed in gold imports into India, a significant quantity is simply smuggled into the country. Smuggling is more active when the taxes are higher, such as in more than a decade ago and again in 2016, and tapers off when the import duties are lower. There are no officially available data on smuggled gold, but unofficially it appears to have increased in 2016.

Second, there are no government reports on India’s imports of dore (pronounced door-ray) gold bars. These are the initial crudely refined bars near mine sites done to reduce the cost of shipping non-valuable ore great distances. Typically, figure that dore bars are 80-85 percent purity. Although the government of India imposes a duty on imports of dore bars, it is a lower rate than for pure bars. Analysts on the street in India report that jewelers have become much more active at doing refinery work to purify dore bars in the past year than they did in years past. But there are no hard data available on the difference this makes in total imports.

As a consequence, it is possible that actual gold imports into India in 2016 may have been higher, about the same, or lower than in 2015. If they were little changed or higher, then people would be misled by taking action on the basis of the decline of official pure gold imports.

Then there is the Chinese gold market, now reckoned to be the largest nation for total gold demand. Similar to India, what the government reports officially as imports includes only first what passed through Hong Kong. These gold imports declined from 2015 levels. However, that isn’t the only source of imported gold. It has not been that long that the government started to allow gold imports directly to Shanghai or Beijing that did not first go through Hong Kong. So, like India, total 2016 Chinese gold imports may have exceeded, matched, or fallen from the year before.

One reason to be careful using GFMS gold data is a massive reporting error last decade that the firm has never reconciled. Beginning in 2003, an anonymous source (that later turned out to be a major precious metals trader in the London market) began reporting to a friend of mine that the Chinese government was secretly purchasing gold reserves. He would report when such transactions occurred and the amount of funds being spent, often in excess of a billion dollars at a time.

By 2005, I had received what I considered sufficient corroboration to report this development. It was not until late April 2009 that the Chinese government admitted that, starting in 2003, it had been buying gold reserves to increase its holdings from about 19.3 million ounces to about 33.9 million ounces. GFMS’s reports over the time period never identified any of this demand for gold. The firm has never explained how their supposedly comprehensive analyses missed such a high level of demand.

In the years since, it is possible that GFMS has not yet been able to include in its reports the source of all of the gold being added to central bank reserves. Lacking this significant data, such reports are of a lot less value.

Note that the errors in reporting demand pretty much consistently have understated total demand. Thus, if you think it is a good idea to own gold on the basis of publicly reported data, then the accurate information would almost certainly confirm your judgment. On the other side, those who sell because of reports of declining demand may regret those decisions.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at

This article was originally printed in Numismatic News. >> Subscribe today.

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