“Paper Gold” and Its Effect on the Gold Price | Casey Research.
Gold dropped to new lows of $1,130 per ounce last week. This is surprising because it doesn’t square with the fundamentals. China and India continue to exert strong demand on gold, and interest in bullion coins remains high.
I explained in my October article in The Casey Report that the Comex futures market structure allows a few big banks to supply gold to keep its price contained. I call the gold futures market the “paper gold” market because very little gold actually changes hands. $360 billion of paper gold is traded per month, but only $279 million of physical gold is delivered. That’s a 1,000-to-1 ratio:
| Market Statistics for the 100-oz Gold Futures Contract on Comex | |
| Value ($M) | |
| Monthly volume (Paper Trade) | $360,000 |
| Open Interest All Contracts | $45,600 |
| Warehouse-Registered Gold (oz) | $1,140 |
| Physical Delivery per Month | $279 |
| House Account Net Delivery, monthly | $41 |
We know that huge orders for paper gold can move the price by $20 in a second. These orders often exceed the CME stated limit of 6,000 contracts. Here’s a close view from October 31, when the sale of 2,365 contracts caused the gold price to plummet and forced the exchange to close for 20 seconds:
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