Dishoarding

The selling back of physical gold, either for reasons of political or economic distress or simply for profit (or even despair at the lack of performance) has become a regular feature of the gold market.

Historically the motive was usually distress, because the gold price was fixed. Many of the French aristocrats who fled to London from the French revolution in 1789 flooded the market there with gold coins. Equally, gold came out of Russia in the years after the revolution and, more recently, from Vietnam after the American withdrawal in 1975, Iran after the Shah’s overthrow and Kuwait after Iraq’s invasion.

But on an international scale it has been price fluctuations that have precipitated dishoarding in the twentieth century. Dishoarding from India in the early 1930s was caused not only by economic distress but also by the gold price rise to $35 per ounce. The wide fluctuations in the gold price since 1970 have also prompted profit-taking on gold, rather than distress selling, from the Middle East and south-east Asia where gold bars or high carat gold jewellery sold on a low mark-up are traded in when the price rises sharply. Notably in 1974, 1980, 1986 and to a lesser degree in 1993, up to 150 tonnes (4.8 m oz) of gold was dishoarded in these regions. Significant dishoarding also took place in Turkey in 1994 prompted by a weak local currency, but the most dramatic recent example was seen in 1997 and 1998 during the Asian currency crisis when Thailand, Indonesia and South Korea collectively dishoarded many hundreds of tonnes of gold.

 This reversal of the normal trend of imports can have considerable impact on the market very quickly. The first signpost of dishoarding is when the local price in such markets as Taiwan, Indonesia, Egypt or Saudi Arabia goes to a discount on the London price: if it remains for more than a week or two, actual shipment of metal back to refineries in Europe will begin. The French have also started dishoarding some of their traditional stock of coins and bars in recent years; a younger generation sees little need to hold inherited gold. Similar dishoarding also occurred in several other European countries during 2000, notably in Germany, Switzerland, Belgium and Austria. Net dishoarding of physical metal in Europe that year is estimated by GFMS to have added some 105 to 145 tonnes (3.4 to 4.7 million oz) to supply. See also Souk.