How Much Gold Exists in the World?
Gold is a very controversial asset. Many investors view the precious metal as a storage of wealth and a hedge against uncertainty, while others call it bubble. The price swings cause much of the confusion, but as it turns out, the supply side of gold is also debatable.
Warren Buffett, chief executive officer of Berkshire Hathaway, painted a colorful analogy of the gold supply last year. In a Forbes article, he says the world’s entire gold stock would fit comfortably within a baseball infield, if it was all melded together to form a cube. The latest annual survey conducted by Thomson Reuters GFMS agrees with Buffett. According to the organization, there is about 377 million pounds of gold above ground, or roughly 171,000 tonnes.
This is very close to Buffett’s estimate of 170,000 tonnes made last year. Buffett explained at the time, “Today, the world’s gold stock is about 170,000 tonnes. If all of this gold were melded together, it would form a cube of about 68 feet per side.” While the current estimate of 171,000 tonnes is reasonable, other research suggests the actual gold supply could be even smaller…
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An extensive study was recently conducted by James Turk, the founder and chairman of GoldMoney, along with the assistance of Juan Castaneda, who has a PhD in Economics and currently teaches at the University of Buckingham in the United Kingdom. Turk graduated from George Washington University with a BA degree in International Economics, and has held positions at Chase Manhattan Bank and the Abu Dhabi Investment Authority. The study analyzes data between 1492 and 2011 to conclude that official estimates of the world’s gold stock is overstated by 10 percent.
The year that Columbus first made his voyage to the Americas is used as a logical starting point, because it marks the beginning of relatively formal record-keeping. It also accounts for the majority of the difference. According to the World Gold Council, which uses data from Thomson Reuters, the world’s gold stock stood at 171,300 tonnes at the end of 2011. However, this total signals the belief that the gold stock in 1492 was 12,780 tonnes. While this figure is similar to a study done by Govett and Govett (1982), Turk concludes it does not seem reasonable given the primitive mining techniques and technology available at the time when comparing the End of Epoch (gold grams per capita) to other time periods.
The study ultimately finds that the estimated gold stock in 1492 was much closer to 297 tonnes. This figure reflects work done by Velde and Weber (1998) for the Federal Reserve Bank of Minneapolis. The estimate of 297 tonnes also correlates well to the 300 tonnes estimate found through independent research done by Heinrich Quiring. Turk estimates that the historic gold accumulation from 1493 through 2011 is 154,947 tonnes. Adding the 297 tonnes to 154,947 tonnes, Turk estimates that the world gold stock at the end of 2011 was 155,244 tonnes, or 16,056 tonnes below the commonly used World Gold Council estimate. The difference is quite significant considering it is more than five-times the current rate of annual production.
Although there are many different views on gold and its role in the global financial system, the fact that the precious metal is still debated today and has outperformed the market over the past decade shows its relevance. While it is not a productive business like an Exxon Mobile, its highly desirable characteristics have allowed it to serve as an asset for more than 5,000 years. Furthermore, its supply is constrained and cannot be improved through a printing press.
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Disclosure: Long EXK, AG, HL, PHYS