The World Gold Council responded to the open letter from Eric Sprott, CEO and senior portfolio manager of Sprott Asset Management LP, indicating that statistics on gold is flawed and the massive imbalance between supply and demand is not fully reflected in the prices of the precious metal.

Gold Sprott

Sprott encouraged the leaders

Sprott encouraged the leaders of the World Gold Council to improve the quality of data and find alternative sources other than the GFMS, which provides a misleading picture on the real demand for gold.

According to him, “This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment. Gold has been one of the best performing asset classes since 2000, and the World Gold Council should be promoting it accordingly.”

Sprott supported his opinion by providing data from different sources, such as the China Gold Association, WBMS, Hong Kong Census, UN Comtrade Statistics, IMF, Bloomberg, and GFMS. According to him, GFMS consistently misrepresents reality, particularly the demand for gold in Asia. He also added that the GFMS estimate on gold recycling is questionable. According to him, the supply from gold recycling is hard to estimate because a large share is done in China and India, and both countries do not re-export their gold. He opined that gold recycling from both countries should not be included in the total gold supply number.

High demands for gold in the first half of 2013

In response, the World Gold Council pointed out that the demand for gold, particularly in Asia is robust this year and in the previous decade. The council said a number of countries and sectors recorded high demands for gold in the first half of 2013, and it is in the forefront of explaining and dissemination outstanding figures on gold.

The World Gold Council said it has been sharing gold demand for decades, and it is putting a great emphasis on the quality of data. The council said is heavily engaged in providing greater transparency and accuracy to the supply and demand model on an ongoing basis.

“The use of import data as a proxy to measure gold demand is somewhat simplistic and does not take into account factors such as round-tripping and stocking/de-stocking. To effectively measure gold demand, a more detailed and holistic analysis is required,” according to the World Gold Council.