Analytical Clarification: Distinguishing Ghana’s Dual Gold Supply Chains and the Implications for IMF Loss Assessment

Abstract

Amidst public discourse concerning the Bank of Ghana’s (BoG) reported financial losses, a critical operational distinction in its gold strategy is frequently overlooked. This analysis clarifies that the BoG manages two functionally separate gold supply chains: one for immediate foreign exchange (forex) generation and another for long-term reserve accumulation. Failure to apply such disaggregation risks overstating operational losses while understating Balance-sheet strength. It posits that a comprehensive assessment of the BoG’s total gold position—including significant unrealized gains on its monetary reserves—could substantially alter the interpretation of reported losses. The note concludes by questioning whether the International Monetary Fund’s (IMF) reported loss figure of US$214 million accounted for this bifurcated structure through rigorous Metallurgical Accounting.

1. Introduction

Recent analyses of the Bank of Ghana’s financial performance have homed in on losses linked to its gold trading activities. However, these discussions often conflate two distinct operational streams with different objectives, participants, and accounting treatments. This conflation risks leading to an incomplete or misleading conclusion about the overall financial impact of the central bank’s gold strategy.

2. The Dual Supply Chain Model

The Bank of Ghana’s gold operations are strategically segmented:

• Stream A: Forex Liquidity & Market Intervention
• Source: Purchases of unrefined gold doré from Artisanal and Small-Scale Miners (ASM).
• Intermediary: Procured via the Ghana Gold Board (GoldBod).
• Destination & Purpose: This gold is excluded from the official monetary reserves. It is traded in international markets for a rapid turnover, with the explicit goals of:

1. Shoring up the nation’s foreign exchange reserves.
2. Supplying forex to oil importing companies and commercial banks to alleviate market pressures.

• Financial Model: Operates on high-volume, short-term trading margins.
• Stream B: Official Reserve Accumulation
• Source: Purchases of refined, certified gold from Large-Scale Mining Companies (LSM).
• Standard: The gold is refined and hallmarked by London Bullion Market Association (LBMA)-accredited refineries, ensuring investment-grade quality.
• Destination & Purpose: This gold is directly added to Ghana’s official gold reserves, which currently stand at approximately 40 tonnes. This serves as a long-term store of value and a strategic monetary asset.

The above two streams as indicated above are functional and not for merely sourcing segregation.

3. Financial Re-evaluation of the Reserve Portfolio

A holistic view of the BoG’s gold activities must account for the value of Stream B. As of the time of analysis:

• The mark-to-market value of the 40 tonnes of reserve gold is approximately US$6.1 billion, based on a world gold price of US$4,530/oz and a typical sales premium.
• The carrying/book value of this reserve, assuming a conservative average acquisition cost of US$1,600/oz, is approximately US$2.06 billion.
• This implies an unrealized holding gain of roughly 200%, representing latent financial strength that could be utilized for forex market interventions or other central bank obligations.

Unrealised gains do not fund budgets but they improve reserve adequacy, swap capacity and collateral strength.

4. Critical Inquiry into the IMF’s Assessment

The IMF’s conclusion of a US$214 million loss attributed to the BoG’s gold activities prompts a fundamental methodological question: Was the assessment based on a complete Metallurgical Accounting?

Metallurgical Accounting in this context would entail a full-chain audit that:

1. Physically and financially segregates gold flows from ASM (Stream A) and LSM (Stream B).
2. Tracks the transformation, refining, and transaction costs for each stream independently.
3. Recognizes both the realized losses/gains from trading (Stream A) and the unrealized gains from reserve revaluation (Stream B).

If the IMF’s loss figure solely pertained to the trading losses from Stream A (ASM gold for forex) without considering the substantial embedded gain in Stream B (official reserves), then the public narrative reflects only a fragment of the Central Bank’s consolidated gold position. This distinction is not merely academic but is central to a fair evaluation of the policy’s net financial impact.

5. Conclusion

The Bank of Ghana operates a sophisticated two-pillar gold strategy. One pillar is a tactical forex tool, while the other is a strategic financial reserve. Meaningful analysis requires this disaggregation. Therefore, any authoritative verdict on losses—including that of the IMF—must be scrutinized against the methodology used. It remains an open and critical question whether a comprehensive Metallurgical Accounting framework was applied to reach the concluded loss figure, or if the assessment was based on an incomplete view of the BoG’s dual-track system.

Henry Osei

(Director Of Research)

Chamber of Bullion Traders Ghana