Written by Bron Suchecki, ABC Bullion Senior Precious Metals Analyst and Gold Industry Group Company Secretary.
When you buy gold you become part of not insignificant community who hold over 6,000 million troy ounces. This is the amount of gold that research firms like Thomson Reuters GFMS estimate exists across the globe – around 187,000 tonnes worth $7.13 trillion dollars.
However, since people are unlikely to truthfully answer a telephone survey about how much gold they have (particularly if they store it at home), how do research firms come up with their estimate?
Firstly, they make the reasonable assumption that all the gold that has ever been mined is still in existence somewhere. It is not like people would throw their jewellery in the garbage bin just because it had become unfashionable, for example. If this is true, then all you have to do is work out how much gold has been mined.
Since governments like to charge taxes/royalties on gold mining, the research firms can collate the detailed government records of gold mining output. They then make an estimate of how much gold was mined in ancient time and up to the 1800s, when records are more reliable.
The research firms assume that pre 1800s global gold mining was unlikely to exceed the amounts prior to the gold rushes, on the basis that people were using primitive technology compared to today. Others argue that until modern time a large amount of gold output was not reported and that gold was easier to find in ancient times, which means that the amount of gold secretly being hoarded is much greater than the official 6 million troy ounces.
Who holds all this gold?
Based on an analysis of supply and demand flows, Thomson Reuters GFMS estimate all the gold in the world is spread out across jewellery, investment, central banks and industrial as per the pie chart (right).
Jewellery is by far the biggest form in which gold is held. In many countries, like India, jewellery is viewed more as an investment than just a fashion item as it is in most Western countries. Indians are said to hold at 18,000 tonnes of gold in jewellery and bar form.
The investment category include individual and professional investors holding gold as either coins or bars. Unlike jewellery, coins and bars are more likely to be traded for profit although there are large numbers of investor who hold gold as insurance against financial failures. Government central banks can also be considered as investors and have recently been adding to their stockpiles.
The industrial category represents gold held as working inventories by businesses who make gold products. This would include jewellers, mints, electronics and even dental (although a mouth full of gold teeth is getting less and less popular, unsurprisingly).
Of these groups, the only ones who regularly report how much gold they have are central banks and reported investments only include futures market warehouses, exchanged traded funds and other private storage providers – and they only amount to 2,300 tonnes out of the 37,588 tonnes
of investment, or just over 6%.
Growth of Gold Stocks
This chart (right) shows the growth of the various stocks of gold over the past fifteen years.
At the bottom of the chart is the reported stocks of central banks and reported investments mentioned above. You can see that it isn’t much compared to the total stocks, which grows at a regular rate.
To get a better understanding of the gold market, and what drives prices, it helps to look in more detail at the sources of gold and the demand for it. Gold sources and demand will be covered in our next two gold investor articles.
READ OUR SERIES OF GOLD INVESTOR ARTICLES.