Many factors have contributed to gold’s impressive rally. Uncertainty about the economic recovery and a severely depreciated dollar, along with fears of inflation, have refloated the idea that gold is a safe place to park one’s cash. It even prompted World Bank chief Bob Zoellick to call for a new monetary world order where gold would be used as an “international reference point of market expectations.” Gold, Zoellick said, is already being used as an “alternative monetary asset.”
So, how much gold is out there? A figure commonly thrown around is that the entire global supply of gold would be enough to fill two Olympic sized swimming pools. Let’s quickly assess this claim.
Many online sources give essentially the same value for the total stocks of above-ground gold; it was about 157,000 metric tons by 2007. If the density of gold is 19.3 grams per milliliter, or 0.0193 tons per liter, then we need to divide the total number by the density (remember the density formula from school? It’s Density = Mass/Volume, so just flip it around). Thus we get about 8.2 million liters of gold. If an Olympic-sized swimming pool has a volume of 2.5 million liters, then we divide and get our answer.
So we would need 3.27 swimming pools to hold the entire global supply of gold, which some argue is the entire amount of gold mined since before the Egyptians began mining gold before 2000 BC. Sixty-six per cent of that is said to have been mined since 1950. It is said that conquistador Francisco Pizarro received a 22-ft. by 17-ft. room full of gold, and two of silver, in exchange for captured Inca ruler Atahualpa in 1532. Pizarro took the gold and then executed Atahualpa by garrote for plotting against the Spanish forces and killing his own brother.
Coming back to the present, two of the most revered money managers in the world, billionaires George Soros and John Paulson, hold huge positions in gold, via the SPDR Gold Shares (GLD) exchange traded fund (ETF). To understand how much of the world supply of gold that is, one has to understand how GLD works.
State Street Global Advisors, the company that manages the GLD, essentially owns all the gold and sells shares, worth one-tenth an ounce of gold, to investors. As of November 19, State Street claimed to have about 1,286.3 tons of gold. That is about 41.4 million ounces, which are held in a vault in London, according to State Street, valued at present prices at about $55.5 billion (read the prospectus here).
Paulson holds 31.5 million shares in GLD. That translates to about $4.2 billion at Friday’s spot price of $133.22, and 3,150,000 ounces of gold, or about 98 tons. That’s 7.6% of the GLD’s supply and enough to fill 0.2% of an Olympic sized swimming pool.
Soros has even less. With 4,697,008 shares of GLD, his valuation comes in at $625,735,405.76. With 14.6 tons, George holds 1.1% of the GLDs total supply and would be able to fill only about 0.03% of an Olympic sized swimming pool!
Our billionaires are going to have to get a smaller pool if they want to swim in gold, or they’ll slam their heads against the bottom of the pool. Many people think that will happen, and with Soros and Paulson holding about 7.8% of one of the largest gold holdings in the world between both of them, the shinny metal constitutes the largest portion of their publicly traded portfolios and a huge bet as, according to their latest SEC filings.
All gold investors should beware. John Girouard wrote in Forbes’ Intelligent Investing Blog that due to the increasing investor interest in gold, many marketers have begun selling “paper gold” which exceeds, maybe in the order of 100 to 1, supplies of physical gold. This is aided by the fact that when someone buys gold, they don’t actually receive the precious metal, rather they receive a certificate for it, most of it isn’t moved or in many cases even produced.
Whether this is paranoia or not, whether there’s a huge asset bubble in the gold market or not, gold is a force to be reckoned with. The whole 3.3 Olympic swimming pools of it might not be enough to satisfy everyone’s thirst for the precious metal.
Check out my related post: How does the world celebrate the new year?