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Wholesale gold
trading through London's global
center just leapt towards summer 2011's records...
GOLD TRADING in London
– heart of the world's wholesale bullion market – leapt in
September.
How come? "The continued economic uncertainty in the
Eurozone and US, the end of the holiday period and the start of the Indian
festival season boosted clearing turnover," says trade body the London
Bullion Market Association, releasing the new data to members on Thursday.
But matched by a sharp rise in the size of gold-backed
trust funds traded on the stock market (ETFs), these latest figures really suggest
strong interest from hedge funds, investment banks and other institutions
around the US Federal Reserve's announcement of QE3, we believe.
Why QE3 as the catalyst? Because the so-called "smart
money" had been hanging on Ben Bernanke's every word all year...willing
him to make free and easy with his electronic printing press once again. And
why that group? Because the other potential buyers just weren't so hot
– buyers whose demand would have quickly registered back up the supply
chain at the wholesale level – and certainly not hot enough to push
gold trading through its world center in London to the third highest value on
record.
Jewelry suppliers in India have kept a lid on their
stockpiling, even ahead of the annual peak in demand due with Diwali in
mid-November. Private households (aka "retail" investors) raised
their demand in September, but not dramatically, as Bullion Vault's own Gold Investor Index shows. And
amongst those central banks who declare their hand each month to the International
Monetary Fund (ie, everyone but China), September
2012 saw them pretty much flat overall as a group.
So you have to guess, therefore, that the so-called
"smart money" was the big buyer, helping drive the daily value of
gold bullion traded through London's 11 big market makers more than 35%
higher in September from August to its highest level since summer 2011's
all-time peaks.
Those 11 market makers – led by global
investment-bank and London vault operators HSBC and J.P.Morgan,
and all guaranteeing to quote firm Gold Buying and selling prices throughout
the day – shifted some $39.2 billion-worth of gold between them on
average each day last month. Make a guess at all of September's other gold
trading done via smaller bullion banks and dealers, all still quoting prices
for settlement in London's secure and accredited vaults, and the total could
have reached to $350bn. That's the multple
suggested by spring 2011's market-wide survey, undertaken by the London Bullion Market Association on behalf
of the World Gold Council.
The aim of that report, in which the LBMA surveyed all its
members, was to gauge the true depth and liquidity of the physical gold
market. The previous best guess-timate – of a
multiple between 3 and 5 times the average daily turnover reported by the big
11 banks – now looks it should stand nearer 8 times. Especially when
gold trading gets hot, as it clearly did in September.
Some of that hot money has turned tail since. This month's
pullback so far has taken Dollar-gold 4% lower to $1700 per ounce. Perhaps
hedge funds, bank traders and other private institutions simply booked early
profits off their September gold trading. Or perhaps they're disappointed
that QE3 didn't instantly send inflation soaring.
Give it time. "There is a great deal of ruin in a
nation," as Adam Smith calmly replied when told in October 1777 that
Britain was ruined by its defeat by the American rebels at Saratoga. Yes, it
took another 170 years for the British Empire to crest and collapse. But
today's limitless zero-rate money won't have anything like as long.
Adrian Ash
BullionVault
Gold price chart, no delay | Buy gold online at live prices
Adrian Ash is head
of research at BullionVault – the secure, low-cost gold and silver market for
private investors online, where you can buy
physical gold today
vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2012
Please Note: This
article is to inform your thinking, not lead it. Only you can decide the best
place for your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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