By Patrick A. Heller
June 1, 2009
The United States Geological Survey (USGS) publishes monthly Mineral Industry Surveys with one series that focuses on gold production, imports and exports. These reports include information from the U.S. Census Bureau on the quantities of refined gold bullion and gold compounds exported from the US.
The latest monthly report is from February 2009, which includes data for 2008 and early 2009. The February 2008 report is the oldest of these reports available at the USGS Web site (www.usgs.gov), which includes data for all of 2007. For prior years, there are annual reports that do not lay out the data in the same format.
In 2008, domestic U.S. gold mine production was reported at between 228 and 230 metric tons. Since a metric ton contains 32,151 troy ounces of gold, that means U.S. mine output was somewhere between 7.33 million and 7.395 million troy ounces last year. In 2007, gold mine output was about 244 tons, or 7.845 million troy ounces.
U.S. net exports (gross exports minus imports) of refined gold were about 10.8 million ounces in 2008 and 11.2 million ounces in 2007.
The intriguing statistics contained in these two annual totals is the net exports of gold compounds. For 2008, there were net exports of 2,818 tons (90.6 million ounces) of gold compounds. In 2007, the net exports were 1,988 tons (63.9 million ounces).
Rob Kirby of Kirbyanalytics in Toronto contacted a USGS employee knowledgeable in the preparation of these reports. This employee told Kirby that the USGS had contacted the U.S. Census Bureau to confirm the accuracy and details of gold compounds exported.
According to the Census Bureau, gold compounds include industrial type products containing low percentages or amounts of actual gold content, with gold paint being given as one example. Kirby mentioned to the USGS employee that the increase in net exports from 2007 to 2008 did not make sense given the global economic downturn. The USGS employee acknowledged that the figures did not make sense, which was one reason that the Census Bureau had been contacted to confirm the data.
Kirby then observed that the high value of such exports did not make sense if it could include only industrial goods, given the decline in global commercial activity. Rather, Kirby speculated the amount of gold exported indicated that it was more likely to be gold bullion or equivalent forms. To this, the USGS employee responded, “That would be correct.”
So, for 2007 and 2008 combined, the U.S. exported 22 million ounces of refined gold and over 154 million ounces of “compound gold.” This is more than 11 times U.S. gold mine production during those two years. In fact, this is higher than global gold mine output. Where did all this gold come from?
This amount of gold exceeds what is held by all private parties in the U.S. combined. When the U.S. government called in gold in 1933, it then melted down the coins without refining. As a result, such bars from the coin melt would have a purity of around 90 percent gold. These would not qualify for description as refined gold, but could fit the definition of compound gold.
In the past few years, several gold traders have commented that a surprising number of coin melt gold bars were being delivered in London and Zurich markets, bars which almost certainly came from the U.S. Treasury vaults.
It is possible that some of these gold exports could be the repatriation of foreign central bank gold that had been stored with the New York Federal Reserve. Such transfers would be classified as “exports” for purposes of this report. The other possibility is that it could be gold formerly held by the only central bank in the world that had that much gold - the United States.
Wherever this gold came from, it is bad news for the U.S. government. If foreign central banks are pulling their gold reserves out of storage in the U.S., that signals lost faith in U.S. financial strength, which the U.S. government would not want the general public to learn about. If the U.S. government has actually been exporting its own gold, while still trying to pretend that the quantity in its vaults is unchanged, confirmation of such exports would clobber faith in both the U.S. government and the dollar.
The U.S. government has not had a genuine audit of its gold holdings in decades. In recent years, it has changed the description of gold holdings in reports so that now it is only described as “custodial gold” rather than gold reserves.
The so-called experts such as the World Gold Council, GFMS, and CPM Group do not include the appearance of all these gold supplies in their reports on global gold supplies and demand, which makes their analyses grossly inaccurate.
The U.S. government has a huge interest in hoping that the general public will not notice or care where all this gold came from. On the other side, for their personal financial protection, Americans urgently need to know the source of all this gold.
Kirby released his report last Friday. I expect that it will foster a clamor for disclosure. If the U.S. government resists providing the information, people will assume the worst - that the U.S. government has a lot less gold than it claims. It would be difficult for the government to lie about the source of this gold and get away with it - too many analysts will be double checking the information. Alternatively, the U.S. government could honestly admit where the gold came from, which I am confident will show much lower gold holdings than reported. No matter how the U.S. government responds, I anticipate that this matter will spark a sharp increase in the price of gold.