TGR: Could the selloff of the EFTs noted in the report make up some of the supply shortfall?
ES: The ETF was raided in H1/13, and I think the World Gold Council should wonder why. I believe it is because there was no gold. The plan was to slam the gold price down, get everyone to liquidate their SPDR Gold Shares ETF (GLD:NYSE) shares, then buy the shares, redeem them for gold and deliver the gold out to the counterparties that are demanding it. The whole thing was a setup because of the shortage of gold.
TGR: Have the statistics this year been more off, according to your calculations, than in previous years? Or is this a continuation of a trend?
ES: No. They've been radically different this year in the sense that we now see this huge increase in imports, 471 tons into Hong Kong. This is a 4,000-ton market, so 471 tons is 12% of the market. Hong Kong in total has exported about 900 tons into China in the first eight months of the year. These are gargantuan shifts. Let's just take the month of August, when Hong Kong imported 299 tons. The free world mines 175 tons per month. That means it bought not quite twice the value of all the gold mined in the month. Where did it come from? Who supplied the gold? That is what I want to know.
TGR: How is what is happening today different than the controversy Frank Veneroso outlined in "The 1998 Gold Book Annual" in 1998?
ES: It's the same thing. Frank Veneroso wrote a tremendous book in 1998 suggesting that, instead of having 36,000 tons of gold, the central banks really only owned about 18,000 tons, and that they had been supplying gold to the market. What I've done in the meantime is identify that it looks as if there's another 2,000 tpa that have come out of the central banks somehow. Therefore, I throw out this question: Is there any gold left?
I suspect that the raid on gold that happened in H1/13 was created by central banks because there probably was no gold left, and they thought by bashing the price of gold down that everyone would sell it. In one respect, it worked. Many who owned the SPDR Gold Trust, the paper gold, sold it. But it started huge buying in the East, in India and China in particular. There were months when India and China were probably consuming 300 tons/month, and we only mine 175 tons/month. So the central banks won one battle to get the gold out of the ETF, but they lost the other battle by igniting this buying interest with low gold prices. At $1,200/ounce ($1,200/oz) gold, you can buy 50% more gold than when it's $1,800/oz for the same amount of dollars. There could be a lot of appetite here.
TGR: If there really is 3,000 tons core annualized demand above supply, what does that mean for what the price of gold will be going forward?
ES: Well, it will be astronomic, because things get out of control. When people finally realize that there's a shortage of gold, the price starts to go up. The most incredible thing to me is that because of all the misinformation out there, China can buy an extra 25% of the gold market over the last two years, and the price goes down. Do you think that could happen in any market like oil, corn, wool or anything? It goes against the rules of supply and demand.
TGR: What should the price of gold be?
ES: It should be substantially higher.
TGR: We've been talking about gold. Is there a similar situation going on in silver? Is silver a more transparent market?
ES: No, it's not. In fact, it's probably less transparent because it's even harder to get data on silver. Who knows how much is used in industry? I have no idea. But in the current year, India looks as if it will go from buying 2,000 tons silver to 6,000 tons silver. Silver is about a 25,000-ton market. So we have a situation where India has stepped into the market and bought 16% of the market out of nowhere, and the price has gone down. Again, that doesn't seem logical to me.
One of the reasons Indians are buying more silver is because they've been restricted from buying gold. If the Indians had to buy as much silver as they normally buy of gold, in the last six months of this year, they'd have to buy two years of silver supply to equate to the gold they normally would buy in the last six months.