Monday, July 22, 2013

More Evidence of Constrained Physical Gold Supply

Andrew McGuire in an interview with King World News provided several points regarding the gold markets:
- The London Bullion Market Association (LBMA) recently extended delivery conditions from 2 days to 5 days.  Traders must now wait 5 days for delivery of their bullion instead of the long established 2 day period.
- Large gold refiners have a large backlog of orders to produce 400 ounce gold bars, which are the standard for trading at the LBMA.
- New vaulting services in the East (e.g. Singapore).

Andrew astutely observes that new vaulting services must be in response to new demand for precious metals storage.  And, new demand for storage in the East shows that bullion is moving to the East from the West (e.g. US and UK).  He adds that his clients and presumably others who need vault service in the East are not 'flippers' and are invested in bullion for the long term.  They will not sell on short term price volatility.  This metal is off the market for the short term and therefore not available if/when short sellers need it to cover.

I also found this interesting bit of news from India: "India central bank further tightens gold import rules to tame demand"
"The RBI asked all nominated banks and agencies to export at least one-fifth of every lot of imported gold in all forms, and locally make it available only for jewellers."  This looks like an effort to placate the jewelry industry in India.  Telling, that gold should be available to jewellers only, and therefore not to investors as coins or bars.  

References: the physical market for gold and silver is distributed globally, most wholesale OTC trades are cleared through London. The average daily volume of gold and silver cleared at the London Bullion Market Association (LBMA) in November 2008 was 18.3 million ounces (worth $13.9 billion) and 107.6 million ounces (worth $1.1 billion) respectively. This means that an amount equal to the annual gold mine production was cleared at the LBMA every 4.4 days, and to the annual silver production every 6.2 days.[1] The Gold Anti-Trust Action Committee claims that clearing data substantially understates the true amount of gold traded, due to the netting of trades in the calculation of Clearing Statistics.[2] They claim the LBMA market is $5.4 trillion a year.[3]
1) Gold bar weighing approximately
400 ounces or 12.5 kilograms and
having a minimum fineness of 995
parts per 1,000 pure gold
2) Silver bar weighing approximately
1,000 ounces with a minimum fineness
of 999
3) Platinum or palladium plate or
ingot between 1 and 6 kilos with
a minimum fineness of 9995

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