As many know, the synthetic markets settle commodities via futures contracts. Anything from lean hogs to wheat and gold are settled via contracts daily. The contract volumes are usually multiples higher than the underlying commodities themselves. Gold and silver are highly monitored markets, according to declassified CIA documents. Daily onslaughts of the USD/JPY algorithm run amuck on a Treasury market, as well as the major indices. You can run an overlay of the 10-year Treasury and the USD/JPY to see the correlation. On the note of futures contracts trading multiples higher, gold is a commodity that doesn’t have much correlation between physical price and paper price. The arbiters of this commodity issue are the COMEX and the London over-the-counter cash market. Most believe that COMEX is the de facto commodity exchange, but it only settles 8% of global trading volume. London, on the other hand, settles 80% of global trading volume. If we look at the physical metrics, they will show you the disconnect.
Global mine production is roughly 4,500 tons a year, including 1,500 tons of scrap gold. In 2016, 638 tons of gold were settled daily and 160,000 tons annually in London. If we look closer, 638 tons is the net volume, which means the gross is significantly higher, perhaps as much as 10x. Some basic arithmetic would mean that the daily gross volume could be 6,380 tons. Annual mine production is only 3,000 tons if you exclude scrap gold. The London over-the-counter market would then be 1.6 million tons, or $64 trillion in annual trading. Global GDP is only $70 trillion, which shows how mispresenting the markets are. This means that the total gold volume traded in London is 500x greater than annual mine production. Total physical gold held in London is roughly 6,500 tons, which equals 1 day of trading or .4% of annual turnover.
One way to solve our trade deficit is to settle our sovereign debt with gold. This would stop the money creation and the excessive buildup of debt. Currency wars are all over and are running rampant. Trump can devalue the dollar like the 1930s and revalue gold. Currently, if the U.S. tried to settle in gold, 453,000 tons would be needed. This means they would need to settle 3x the amount of gold ever created. Like the 1930s, a revaluation would mean gold would be multiples higher.
Original post by Colin Bennett for CrushTheStreet.com 2017-04-16:
https://www.crushthestreet.com/articles/breaking-news/paper-gold-market-91-global-gdp