major bosco
Fri, 27 Apr 2001 18:12:00 -0700
Chew on this a little while you are sucking up to JPM.. http://m1.mny.co.za/422567CB004DBB8F/UNID The size of the gold derivatives market Late in 1997 the London Bullion Market, the most important market for gold in the world, announced the size of gold trading for the first time. Approximately 1,000 tonnes of gold traded through its facilities every day, which includes physical gold and gold derivatives. 1,000 tonnes of gold is just over 32 million ounces. Keep in mind that gold not only trades in London, it also trades in New York, Tokyo, Brussels, Hong Kong, Dubai, Turkey, Singapore, South Korea and other financial centers. But for the sake of simplicity, and to remain conservative, assume that total world trading of gold is not much more than London Bullion Market trading. So, let us assume that gold trades on average only 1,000 tonnes per day. Remember that these are very conservative estimates based on the available information. The actual size of the market is by definition larger than this. If gold trades five days a week, 52 weeks a year, it means that roughly 260,000 tonnes of gold changes ownership during the course of a year. 260,000 tonnes is almost 8.4 billion ounces of gold. To put this in perspective, the total amount of gold ever mined is only about 137,000 tonnes. All the central banks in the world together own only 31,400 tonnes. The amount of physical gold that trades every year is, by comparison, a minute 4,500 to 5,000 tonnes, and the annual trade deficit that everyone talks about is an infinitesimal 276 tonnes. The physical gold market is less than 2% of the size of the derivatives market. The annual supply deficit is only about 0.1% of the total market and central bank sales, which everyone is blaming for the demise of the gold price, are only 0.12% of the gold market. The price of gold The value of annual gold derivatives trading is twice as much as the total amount of gold that has ever been mined, and this figure is based on a conservative estimate of the size of the derivatives market. But only about 5,000 tonnes, or 4% of the total amount of physical gold, changes hands every year. It is obvious that the physical gold market is absolutely dwarfed by the size of the derivatives market for gold. It is logical and inevitable that the derivatives market, not the physical market, determines the price of gold. The key to understanding the gold price is to understand what drives the price of gold in the derivatives market. _________________________________________________________________ Get your FREE download of MSN Explorer at http://explorer.msn.com --- You are currently subscribed to e-gold-list as: archive@jab.org To unsubscribe send a blank email to [EMAIL PROTECTED]