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Where Did the 14.6 Million Ounces of Gold Come From?

Gold bars, illustration

In 2003, China’s central bank began adding to its reported 600 tons (19.3 million ounces) of gold reserves.

I heard reports of these purchases from a gold analyst friend, who said his source was an anonymous bullion trader who claimed to have handled some of these purchases. Periodically, this friend would pass along the amounts being spent to purchase Chinese gold reserves. But, since I had no other source of confirmation that this was happening, I did not immediately pass along this unverified story.

In 2005, I received information from another source that this activity was under way and began writing about it.

It wasn’t until April 24, 2009, that the Chinese central bank announced it had been purchasing gold reserves since 2003, adding a total of 454 more tons (14.6 million ounces) to what it had reported as reserves from 2003 up to that date.

In a world where worldwide new gold mine output was approaching 100 million ounces annually, this was a large enough quantity that it had to come from somewhere. It wasn’t just rounding errors.

There are companies that specialize in tracking precious metals market activity, including new mine output, recycled scrap, official sales and purchases, central bank leasing activities, movements in and out of exchange traded funds, commodity market inventory receipts and deliveries, and the like. They then assemble this accumulated research on supply, demand and inventories to sell it to market participants. Among the reports these entities produce are annual statements of market activity.

Guess what? In all these annual reports from 2003 through 2009, the stated new supplies were all noted as having gone to other destinations, with none of the gold supply or inventory going to China’s central bank.

You would think that a discrepancy in supply of this magnitude would have these reporting companies desperate to figure out where their research had gone off track. They would need to do this to reassure their paying customers that future reports would be even more accurate than in years past.

As far as I can tell, identifying the source of these 14.6 million ounces of gold has never been corrected by these companies. Since it had to come from somewhere, let me speculate what might have happened.

Governments and central banks have been trying to manipulate the price of gold ever since the creation of the U.S. Exchange Stabilization Fund in 1934. Almost always, the tactics were intended to hold down gold’s price. However, if people were aware that such price-fixing was taking place, that would lessen the impact of such market rigging.

Therefore, much of the suppression of gold (and also silver) prices for more than 85 years has taken place out of the public eye (with the exception of the highly publicized Bank of England gold sale 1999-2002, the Swiss National Bank gold sales from 2000-2008 and the International Monetary Fund gold sales from 2009-2010).

How could the market be supplied with physical gold that didn’t have any apparent source?

The most likely culprits are one or more central banks that leased, sold or swapped gold reserves to provide physical gold to the market, but did not disclose that it had done so. There is an enormous volume of such activity that is acknowledged. For instance, Jessica Cross, a longtime mainstream analyst of the precious metals markets, estimated that about 15-25 percent of all central bank gold holdings were out on lease. In contrast, Frank Veneroso, a consultant to the World Bank and several central banks among his clientele, projected that 25-50 percent of central bank gold holdings were out on lease. This indicates that possibly more than 100-200 million ounces of central bank physical gold may have been surreptitiously leaked into the market over the decades without being disclosed – specifically to help suppress gold’s price. If so, this would be the most likely source of the gold sold to the Chinese central bank from 2003 to 2009.

There is another complicating factor in tracking central bank and international institution gold reserves. Up until several years ago, if one central bank leased gold to another central bank, the International Monetary Fund (IMF) required that both central banks report this same quantity of gold as being part of their gold reserves. When the IMF changed this requirement, it didn’t prohibit both central banks from still reporting this leased gold as being part of their gold reserves. Instead, it simply allowed (but did not require) the central bank that had leased out the gold and no longer had physical custody of the metal to stop including this in reported gold reserves.

Despite some pretenses of transparency, a lot of activity in the gold market is unreported and opaque. There is obviously a good amount of market manipulation happening. On Monday this week, for example, a settlement agreement was filed with a federal court in Manhattan where Barclays PLC, Societe Generale, Scotiabank and London Gold Market Price Fixing, Ltd have agreed to pay a combined additional fine of $50 million to settle antitrust litigation over alleged rigging of the London gold fix. Note that all three of these banks are among the 24 primary trading partners of the Federal Reserve Bank of New York.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman National Dealer of the Year Award, and 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including in 2021 for Best Investment Newsletter), Professional Numismatists Guild, Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Michigan 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 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio archives posted at