Description of gold by Keynes as “barbaric relic of human irrationality” is nowhere more evident than Indians insatiable appetite for gold. Gold demand shall continue to remain inelastic for Indians as it is bought mainly for store of value, future consumption (gift and wedding), last resort during bad days or mere speculation. Though India is the largest consumer, it shall remain a price taker of gold from London & New York.
A look at the last month’s price graph will show that the prices have been falling. However, a one and ten year’s price data gives an upward trend. The banks are evidently en-cashing on the Indian consumer behavior and earning handsome profits of 5 to 7 percent from gold coin sales. The banks do not buyback the gold coins sold (even though coins shall remain preserved in tamperproof packing along with Assayer certificate). Inspite of the quote variance by the banks, the gold coin sales remain buoyant.
A look at the last month’s price graph will show that the prices have been falling. However, a one and ten year’s price data gives an upward trend. The banks are evidently en-cashing on the Indian consumer behavior and earning handsome profits of 5 to 7 percent from gold coin sales. The banks do not buyback the gold coins sold (even though coins shall remain preserved in tamperproof packing along with Assayer certificate). Inspite of the quote variance by the banks, the gold coin sales remain buoyant.
LBMA, the London-based trade association that represents the wholesale bullion market with focus on international OTC (Over-the-Counter) market for gold, with a client base that includes majority of the central banks that hold gold, producers, refiners, fabricators and other traders throughout the world has just taken the highly unusual step of blocking access to statistics relating to the trading activities of its member bullion banks. This information has been available to the public since January 1997 but since last week it is available only to LBMA members. When the LBMA first made its trading statistics available, observers and analysts were shocked. No one could reconcile the statistics with other market data, nor comprehend how the bullion banks could be trading on a net basis of more than 240,000 tonnes of gold annually while the global mine output was only 2,400 tonnes.
At a recent public hearing of the CFTC on precious metals futures markets, some people had cited the LBMA's own statistics to label the "unallocated gold" accounts of the bullion banks as a Ponzi scheme. There were bullion bank representatives at the hearing but no one expressed an objection. In fact at that hearing, one of the world’s foremost authorities on the markets for precious metals, Jeffrey Christian CEO of the CPM Group had stated that 100 ounces of paper gold are traded for every 1 ounce of physical gold.
This June, the LBMA trading statistics showed that in May 2010 the average net daily trading in gold by LBMA member banks had moved to 24 million ounces per day from 16 million ounces per day…..A massive 50 percent jump within a month. That translates to $7.5 trillion annually. If an operation is running on a razor-thin fractional reserve basis, such step changes are often fatal.
Typically when people are exposed in a scandal their first reaction is to cover-up. It seems that the LBMA has now commenced a cover-up with respect to the gold trading activities of its member bullion banks, withdrawing statistics from the public domain. There is a cover-up of back-door injections of liquidity of physical gold, and the LBMA now is trying to conceal trading information. …..It appears that a run on the bullion banks has commenced.
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