On Christmas Eve 2012, billionaire investor Eric Sprott spoke with SeekingAlpha and discussed the current gold-buying sprees of the central banks of the world.
Sprott pointed out that central banks continue to buy gold in developed and emerging countries. He does not believe western banks hold the amount of physical gold they claim to possess, and he criticized the never-ending money printing (quantitative easing) by western central banks. He continued to hypothesize that central banks have leased out much of the gold in their possession, which inflates the amounts of physical gold actually available in the market.
“I think we are in for a shortage of physical gold,” said Sprott. “I mean the data I look at, one just wonders how long can these western central banks keep doing this. Sooner or later you run out of gold. They only have so much gold, and it was estimated they had as little as 18,000 tons back in 2000, I would think they might be running on fumes these days.”
Sprott pointed to the central bank buying patterns of the emerging countries, and used the example of the estimated 500-ton increase in gold bought by central banks in Latin America in 2012. He argued that the amount of gold available to change hands has not increased as dramatically its demand by central banks.
“I’m pretty sure the number will be at least 500 tons of [Latin American] central bank buying,” commented Sprott, “and interestingly that contrasts with – they used to sell 400 tons a year. [Together, this is] a 900-ton change in what central banks are doing per year in a 4,000-ton market. Who is not buying the gold that’s been buying it all along? Because the supply has never increased in the past 12 years.
“I’ve argued that there’s at least a 2,400 ton shortage a year of physical gold and that the Western central banks have to be supplying that gold,” continued Sprott, “because the physical things you can count, the paper stuff… who knows what is going on in the paper markets?”
Sprott also referenced the ongoing economic crisis, and the inability of global markets to adequately recover from the crisis of 2008.
“I don’t think the world will countenance printing money ad nauseum, which has been going on in the western central banks,” said Sprott. “…It’s going to end badly.”