Author: Adrian Douglas of Market Force Analysis
On October 9 I published an article that postulated that the gold market is a Ponzi scheme because it sells gold that doesn’t exist by implementation of the principles of fractional reserve banking. Since writing that article further information has come to light which supports this claim and allows an estimate of how much gold has been sold that doesn’t exist if the owners of the gold ask for it. In other words there are several owners for each ounce of physical gold.
By complete coincidence Paul Mylchreest of The Thunder Road Report has just written an in-depth study into the daily trading volumes of gold on the London OTC (over-the-counter) market which you can link to here. The London OTC market is where most of the physical gold in the world is traded. This market is a wholesale market where trades are only conducted between the bullion trading houses on behalf of their clients. About 95% of the trading is by way of gold that is held in unallocated bullion accounts. The unique characteristic of gold is that about 50% (80,000 t) of the world above ground gold stocks are held as a store
of wealth (investment). The other 50% exists as jewelry. When gold is bought as a store of wealth it can perform that function for you where ever it is in the world.
Given this unique characteristic many large investors in bullion prefer to leave their gold with the bullion dealer from whom they bought it so that it can be stored in their vault and easily re-sold. This is identical to the situation with stocks where most stock certificates are held by the brokerage house not by the individual.
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