Sprott - This Is Why There Is Such A Massive Shortage Of Gold
Today billionaire Eric Sprott spoke with King World News about the stunning events which have transpired in the gold market over the last six weeks and he provided KWN exclusively with an absolutely extraordinary chart. Sprott also spoke about exactly why there is such a massive shortage of available physical gold around the world. This is the first in a series of three written interviews with Sprott that will be released today. Below is what Sprott, who is Chairman of Sprott Asset Management, had to say in part I of this remarkable series of interviews.
Eric King: “Eric, I wanted to get your thoughts on what happened to gold in the last six weeks?”
Sprott: “It has been my view, and as many of your commentators and interviewees have mentioned, previous to the April 12th to 15th smash, it seemed that there was a clog-up in the delivery of gold throughout the system.
As (Egon) von Greyerz mentioned, whether it’s guys trying to get gold out of their Swiss banks, LBMA deliveries being extended, or people who can’t convert their COMEX contracts into physical gold, there were all sorts of things that suggested there was a tightness in gold. Including, of course, the COMEX inventories, the deliverable dealer inventories falling from 11 million ounces to 8 million ounces....
“It’s my hypothesis that there was a dearth (scarcity) of gold, and as you know I’ve written many articles questioning whether central banks had any gold left. The conclusion I had was of course that they didn’t because we could see all of this huge new demand coming in.
I’m talking over a 10-year period where I can identify approximately 2,300 tons of net-new demand coming into a market where the supply was staying the same at roughly 4,000 tons a year. I said, ‘Well, this is physical delivery. Where is the gold coming from?’
So it wasn’t a surprise for me to see that all of the sudden these anecdotal items were coming up about how people couldn’t get delivery (of gold). Then we start this decline by various major investment banks saying, ‘Short gold.’ What I think was really happening was that the shortage was becoming very, very acute.
So I decided to do a comparison of Shanghai premiums to what happens to the GLD. Pretty well any time that the Shanghai premiums go up, the GLD inventory starts declining. GLD has lost about 300 tons of gold, which is a lot of tons of gold when you figure that the miners, ex-China, ex-Russia, only produce 2,200 tons of gold. This was 300 tons in the first four months of the year.
King World News note: Eric Sprott sent the chart below exclusively to KWN and only for King World News to publish. Note the tremendous drain of gold out of the ETF GLD as the Shanghai premium expands.
Even before the April 12th and 15th crash, the tonnages were already rolling out of the GLD. It’s my belief that that gold was being drained out of the GLD in order to supply the demand in Asia.
Therefore, the whole of gold that went out of GLD, rather than being a sign of weakness which is what everyone was pointing to, it was not a sign of weakness. It was a sign that banks had no gold. Just imagine a situation where there is no gold to deliver. What’s the only other place you can go to? You can go to the GLD and start draining it.
That’s why we’ve seen this huge decline in GLD because it’s actually the last bastion of supply to satisfy this demand. So I don’t regard the GLD losing gold as a sign of weakness whatsoever. It’s not institutional investors getting out of GLD. It’s the (gold from) GLD being shipped over to the East and someone spinning it as a weakness, and I totally disagree with their conclusion. In fact I think it’s quite a sign of strength. I would like all of the gold out of the GLD to disappear and let’s see what happens after that.”