Tag Archives: Precious metal

Paper Gold Trading Drops in Q1, Negative Inflow for First Time in 2 Years

The OTC investments in gold papers decreased for the fourth quarter in a row during the three first months of 2011, the latest report from World Gold Council show. Investments in gold EFT’s and similar products fell by 56 tonnes in Q1, equaling a net outflow from the funds of more than USD 2,5 billion.

Notably, EFT’s listed in the US and the UK markets experienced net redemption in the first quarter.

World Gold Council


In spite of a fresh all-time-high for the gold price, the capital flow in the markets for ETF’s, and similar gold related investment products, is negative the first time in two years. The outflow in Q1 is almost as big as the inflow in Q4 2011.

But the gold market works in mysterious ways, so what’s actually going on is kinda hard to say.

One thing is for sure, the central banks are buying gold as never before.

But besides Japan, no one is selling.

In the open market, that is.

Most of the trading is done in the non-transparent OTC market.

By who? you might ask.

Well, your guess is as good as mine. This is what the World Gold Council wrote in their April Gold Investment Digest report:

The majority of gold trading takes place in the global over-the-counter (OTC) wholesale market for physical bullion.

While OTC markets are the deepest and most liquid markets in the world, information about transactions is not always fully accessible to the public as they are conducted outside of regulated exchanges.

However, evidence suggests that trading volumes in the global gold market is quite large; in-line with or larger than trading of other high-quality assets such as sovereign debt.

The London Bullion Market Association (LBMA), through surveys of its members, estimates that the daily net amount of gold that was transferred between accounts in 2010 averaged USD 22 billion (based on the average 2010 gold price).

However, in practice, trading volumes between the bullion banks are significantly higher.

Most banks estimate that actual daily turnover is at least three times that amount and could be up to ten times higher.

This would value global OTC trading volumes anywhere between USD 67 billion and USD 211 billion.

During the first quarter of 2011, figures from the LBMA show that activity in the OTC market mirrored that of ETFs and futures.

Volumes rose during the January consolidation to an 8-month high of US$26.1bn/day before subsiding in February as prices recovered. Assuming a continuation of this pattern, indications from ETF and futures markets are that OTC volumes picked up again in March as gold prices maintained their
steady climb, the WGC wrote in last months report.

Well, here’s today’s update:

The April report seem, in fact, more interesting now, after the release of the May report.

Here’s some more:

Activity in the ETF options market remains robust, which continues to offer alternative strategies for investors. The majority of the volume in these products is still being transacted by way of GLD options. In line with some of the outflows experienced in the ETF market during the quarter, GLD options volumes dropped in Q1 2011 on a quarter-on-quarter basis. However, at an average daily volume of 234,724 contracts during the first quarter, trading volumes remain higher than the daily average of 208,131 contracts during the whole of 2010. In general, call option volumes remained higher than put volumes during the period. Similarly, open interest on call options accounted for the majority of traded contracts, at an average of 2.1 million contracts in Q1, compared to 1.7 million put contracts. However, open interest in call options fell further relative to Q4 2010 than the open interest in puts, as investors likely exercised some of those calls as the price of gold fell in the early part of the year.

And here’s some of the most interesting charts from today’s release, Gold Market Trends, May 2011.

Download:

Related by the Econotwist’s:

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1 US Cent Is Now Worth 3

The special cell of Delhi Police, on Friday, claimed to have busted two illegal factories involved in melting old Indian coins and converting them to metal slabs for sale in the open market for making artificial jewellery and antiques worth a couple of crores of rupees. I wonder if this is just the tip of an iceberg? Or a sign of things to come?

“US 1 cent copper coins in circulation (minted between 1909 to 1982) now have a metal value of 280% of their face value. Please do not melt coins! As collector items they could be interesting.”

Collector’s Blog


“As the price of a series of base metal (and precious metal) have gone up, so has also the theoretical melt value of many coins. Well precious metal coins typically do not sell below the melt value. However standard coins in circulation can typically be bought at face value. US 1 cent copper coins in circulation – minted between 1909 to 1982 – now have a metal value of 280% of their face value. Please do not melt coins, as collector items they could be interesting,” Dr. Espen Gaaarder Haug writes in his latest blog post.

“As the price of a series of base metal (and precious metal) have gone up, so has also the theoretical melt value of many coins. Well, precious metal coins typically do not sell below the melt value. However standard coins in circulation can typically be bought at face value,” Haug writes.

Adding: “I say theoretical melt value, because in many (most?) countries it is illegal to melt coins. But clearly some people got more than tempted to buy coins at their face value and then melt the coins to sell them for the metal value.”

In a research paper published in 2009, Dr. Espen Haug and Dr. John Stevenson shows that physical money – in this case coins – is in fact a very complex derivative with several embedded options. The value of the metal being one of them.

(Here a copy of the paper: “Options Embedded in Physical Money”)

There has not been too much focus on the subject, but with the price of most commodities, metal included, I assume it’s just a matter of time before we see a lot more cases like the one reported from India on Saturday.

Five persons; factory owner Mohd Jameel,  his acquaintances and his laborers were arrested on January 5 in connection with the case, Arun Kampani, deputy commissioner of police (special cell), says.

According to Times of India, raids were conducted in two factories at Johripur and Karawal Nagar from where nearly 1.550 kg metal slabs, huge quantity of coins, dyes, air pumps, motors, weighing machines, tools and other gadgets were recovered.

Another raid was conducted in Shahbad Dairy and Sadar Bazar and 350 kg of metal slabs were recovered from the premises owned by one Shyam Sunder, the Times of India writes on their website.

“These old coins, which had been issued by the Government in 1970s, 80s and 90s, had substantial metal weight. With the passage of time, metal value of the coins increased vis-à-vis denomination value of the coins due to the rise in metal cost. The situation led to this racket of fraudulently melting old coins of 50 paise, Re 1 and Rs 2 denominations into bricks, and further selling these to metal dealers,” Kampani says.

According to the Collector’s Blog at Wilmott.com, 1 US cent copper coins in circulation (minted between 1909 to 1982) now have a metal value of 280% of their face value.

“Please do not melt coins, as collector items they could be interesting,” The Collector urges.

Dr. Espen Gaarder Haug is a regular contributor at The Swapper and other blogs under the Econotwist’s umbrella.

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Why Gold & Silver Prices Will Continue to Explode Higher

The price of gold reached a new record high Thursday at 1354 dollar per ounce, silver touched a new all time high at 23,5 dollar an ounce.

J.S. Kim at SmartknowledgeU.com on why gold/silver prices will explode higher in 2011 and coming years, and the fraudulent nature of the global monetary system:

Market Snap Shots

Gold: Slightly down after the new record, however, RSI is still tending up.

Here’s the last six week’s chart:

And here’s the last 48 hours:

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SILVER: Seem to follow the gold price pattern. However, the last six week’s chart show – as opposite of gold –  a slightly downward tending RSI.

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