[[citation needed]]
>The ratio of iron-ore derivatives to physical trading volume was about 25 times, far lower than the 80-100 time for more mature commodities such as gold and copper, according to a study by Hong Kong Exchanges & Clearing.
https://www.bloomberg.com/professional/blog/expect-chinas-fu...
Silver is quite a lot worse btw
Might be worth pointing out that this isnt surprising given the activity of speculators in the market. Without markets would get cornered for investment and industry would cease.
edit1: There is however also an incentive to keep individuals from investing into precious metals due to monetary considerations. Derivate induced volatility is one way to do that. https://wikileaks.org/plusd/cables/1974LONDON16154_b.html
edit2: Also worth considering is that the large central bank holdings can and will be loaned out to maintain price stability if push comes to shove and gold were to rise drastically.
Paper gold is something like the gold ETFs where a share represents gold in the fund’s vault. If those were actually fraudulent in reserves, then you would have a point.
Every commodity that has a futures and options market will have a huge ratio of derivatives to the underlying. That’s the nature of producers and consumers locking in prices and speculators getting in between.
I also didnt disagree with derivative overhang being normal. Not sure why you thought it necessary to repeat.
This one even lets you convert: https://www.vaneck.com/us/en/education/investment-ideas/phys...
I thought it necessary to spell it out because your understanding is clearly based on the false assumption that most of the gold investments aren’t backed.
https://www.gold.org/goldhub/gold-focus/2021/06/basel-iii-an...
Or directly from the LBMA:
https://cdn.lbma.org.uk/downloads/Pages/NSFR-PRA-Letter-fina... https://www.lbma.org.uk/articles/pra-clearing-banks-may-now-...
This is not to say that all ETFs work this way. I believe Xetra is one example of being fully physically backed. But this naturally increases running cost due to storage. Last i checked i believe you pay in the rough region of 0.1% a year in storage cost at the reputable physical gold bullion storage sites as a large customers (tons / room). That sums up. This also explains why physical copper is not something you can easily invest in.
But again, this kind of misses the point, i would really appreciate a definition of paper differing from backed by derivatives. I think you might be onto something here, i ran into this argument a few times now so i believe i might be missing something.
I would also like to reiterate that i do not share the conclusion the initial post made about run away gold prices. I elaborated on that in the other posts.
Sorry for the late edits, had to double check the numbers.
A /GC futures contract—-even with physical settlement—- is not paper gold because two parties can create the contract without any actual gold existing anywhere.
Which doesn't mean ETFs like GLD are not real. It just means that if I say I'll bet you the price goes up, we settle the bet at $100 for each dollar the price moves, that is independent of us actually owning any gold.
Whats your definition of real if it doesnt involve physical gold? An ISIN existing? Sorry if that sounds passive aggressive, i cant figure out how else to word it.
There seems to be another definition of paper gold i am missing? I always assumed it was clear we are talking about derivatives.
>There is a belief that there exists a lot more paper gold than actual gold. So when the run on the reserves starts, the price of gold will explode as billions of dollars worth of gold in the market disappears.
is probably not representative of what would happen. Derivative bets can come and go without really moving the spot price.
But again, due to golds importance from the monetary perspective, significant price increases are not going to happen. It could be seen as currencies devaluing, thus lending out central bank gold reserved to achieve price stability is very much on the table. I believe it was Greenspan that talked about this in the past.
¹ https://www.reuters.com/article/jp-morgan-spoofing-penalty-i...