Tuesday, June 26, 2007

Real Drivers of Gold

The annual mine production of gold is around 2500 metric ton. The notional amount of gold over the counter (OTC) derivatives is 463 Billion USD (BIS Dec 2006). This numbers alone support much higher gold price, just do the simple math.

This is only small part of the story as Total OTC derivatives (most are interest rate contracts and credit default swaps) amount at 415 Trillion USD. Gold derivatives are just 0.1% of the total amount. Compare that to an annual total world GDP of about 70 Trillion.

In addition it is strongly recommended that you review this post : Gold Market Overview

Gold Anti-Trust Action Committee(GATA) documentary video(2005)


Saurabh said...

the point being missed is that central banks control liquidity. If they pull the carpet under our feat, there would be no demand whatsoever for gold or any other investment option (e.g stocks, real estate etc)

troy said...

That cannot be done because of high level of debt from the government, corporation to the consumer. Doing that will bring spiral depression and so much debt will be defaulted- a real risk for the financial system. The OTC derivatives is liquidity that indeed controlled by few but it is still liquidity.

Gold on the other hand can and will be used to absorb some of this evil liquidity. Let say gold at 7000$ no damage for anyone besides naked short sellers, after all many people all around the world own some gold. I don’t see how high price of gold can hurt anyone, not the case with Corn, copper or oil for instance.

Jayson said...

The US Fed is between a rock and a hard place. If they dont raise rates, US inflation ("liquidity") is going to accellerate. If they raise rates to control liquidity, they will decimate the already crashing housing market and kill the US economy. They will choose to keep the economy afloat by keeping rates low and do their best to deny the growing inflation with words and obfuscation. This is why they have stopped publishing M3.

troy said...


Agree, transparency hasn't been high lately.



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