24 September 2015

Nick Laird: The London Gold Float Is Running Unusually Low

The gold pool is expressing some interesting dynamics that appear to be winding towards a denouement of sorts.

The current trajectory could change if the price is allowed to rise to clear the market, or any number of other seemingly improbable events.

The silver market is also acting very oddly.  I have not gotten a real handle on that, other than soaring premiums for coins and a lack of serioius buying in the US compared to the rest of the world. Similar to gold in some ways, although the central banks have no stockpiles of silver with which to rescue the bullion banks, again.

It is funny but few seem to notice these things, or even care, for whatever reasons that people do not notice something until it is too late to do anything meaningful.

I think that sometimes we can become 'victims of the ordinary.'  When the same thing happens again and again, we expect the same thing to happen next, and any change from this pattern seems almost unimaginable.

"My main focus is to try to bring into context the size of the "London Float" out of the shadows and into the light of day. The London Float being the working supply of gold available to meet the markets daily needs.

One must treat this with the consideration that much of the known gold shown is already owned & not available to meet the markets needs - not unless the owner wants to sell. The presumption being that the Central Banks reserves are not available to the market. They do lease/swap but under their own intent and of late the trend has been to not lend in risky markets but rather to claw back physical into direct ownership.

The years around 2000 were when the Mine Hedge Book was most active with approx 3200 tonnes being lent into the markets by the Central Banks.  By 2007 much of the Hedge Book had been closed out & they were under 1000 tonnes falling under 100 tonnes by 2013. From 2011 gold repatriations of Central Bank reserves started & since then have only grown.

So one presumption from this study is that over time the stance of the Central Banks has been to reduce their lending and bring their gold closer to home. Hence the presumption that the gold held in the Bank of England is mostly all there, unencumbered and released from leasing and swaps. Obviously some will still be lent out but the presumption is that the tonnages lent out are far smaller than in the past...

The UK Imports approx 602 tonnes per year & exports approx 388 tonnes per year (since 1999) according to the EuroStats database (thanks kindly Koos). However with the recent gold demand from Asia these statistics have changed dramatically. Since the start of 2011 the UK has imported 2982 tonnes & exported 3998 tonnes with net exports of 1016 tonnes seeing exports double their normal average to 800 tonnes per year.

This leaves the London Vaults with a FLOAT of between 1361 tonnes and 200 tonnes with the probability that it is closer to the lower number.  If it is closer to 200 tonnes then London does have a problem as a FLOAT of this size is not enough to cover their flows for 4 months."

Read the entire analysis with charts at The London Float.

Related: Shrinking Supply of Available Gold In London For World Demand