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[[citation needed]]

cf141q5325 3y ago
Edit: This should do >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-futures-market-opening/ 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 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.
- kortilla 3y ago
  Derivatives are not the same thing as paper gold and conflating the two is just a sales tactic to push the oversubscription meme. 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.
  - cf141q5325 3y ago
    If i am not mistaken those gold ETFs are backed by derivatives. Please do share a differing definition for "paper". I also didnt disagree with derivative overhang being normal. Not sure why you thought it necessary to repeat.
    - kortilla 3y ago
      It’s like two seconds of googling. The biggest ones are backed by the asset. https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-gold-shares-gld https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-gold... This one even lets you convert: https://www.vaneck.com/us/en/education/investment-ideas/physical-gold/ 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.
      - cf141q5325 3y ago
        Another poster (tim333) made a great summary of the concept behind GLD (your first link) a few posts up. Those backed assets are otherwise owned and loaned against. IShares is the other one with a similar concept. You can read up on this in the context of Basel 3's net stable funding ratio and the exemption LBMA (the biggest backer of COMEX) achieved. https://www.gold.org/goldhub/gold-focus/2021/06/basel-iii-and-gold-market 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-final_signed-20210504.pdf https://cdn.lbma.org.uk/downloads/Pages/NSFR-PRA-Letter-fina... https://www.lbma.org.uk/articles/pra-clearing-banks-may-now-apply-for-exemption 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.
        kortilla 3y ago
tim333 3y ago
When people say things like that what they usually mean is the volume of bets on the price of gold in the futures markets is much larger than the trading in either physical gold or ETFs representing physical gold. 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.
- cf141q5325 3y ago
  >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.
  - tim333 3y ago
    Ok fair enough - I was unclear on the definition of paper gold. But the idea that >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.
    - cf141q5325 3y ago
      While again i dont disagree with your conclusion, i believe your arguing here is flawed. The derivatives can and do move the price significantly. JPMorgan payed quite hefty fines for manipulating the precious metal markets (as well as treasuries) through spoofing¹. Thats now happening by dumping significant volumes of derivatives onto the market at times its especially thin. Which can be in the order of magnitude of yearly productions. Combining this with bots trading trends prices can be moved significantly. 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-idUSKBN26K325 https://www.reuters.com/article/jp-morgan-spoofing-penalty-i...

[[citation needed]]

Edit: This should do >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-futures-market-opening/ 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 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.

kortilla 3y ago
Derivatives are not the same thing as paper gold and conflating the two is just a sales tactic to push the oversubscription meme. 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.
- cf141q5325 3y ago
  If i am not mistaken those gold ETFs are backed by derivatives. Please do share a differing definition for "paper". I also didnt disagree with derivative overhang being normal. Not sure why you thought it necessary to repeat.
  - kortilla 3y ago
    It’s like two seconds of googling. The biggest ones are backed by the asset. https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-gold-shares-gld https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-gold... This one even lets you convert: https://www.vaneck.com/us/en/education/investment-ideas/physical-gold/ 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.
    - cf141q5325 3y ago
      Another poster (tim333) made a great summary of the concept behind GLD (your first link) a few posts up. Those backed assets are otherwise owned and loaned against. IShares is the other one with a similar concept. You can read up on this in the context of Basel 3's net stable funding ratio and the exemption LBMA (the biggest backer of COMEX) achieved. https://www.gold.org/goldhub/gold-focus/2021/06/basel-iii-and-gold-market 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-final_signed-20210504.pdf https://cdn.lbma.org.uk/downloads/Pages/NSFR-PRA-Letter-fina... https://www.lbma.org.uk/articles/pra-clearing-banks-may-now-apply-for-exemption 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.
      - kortilla 3y ago

tim333 3y ago

When people say things like that what they usually mean is the volume of bets on the price of gold in the futures markets is much larger than the trading in either physical gold or ETFs representing physical gold. 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.

cf141q5325 3y ago
>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.
- tim333 3y ago
  Ok fair enough - I was unclear on the definition of paper gold. But the idea that >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.
  - cf141q5325 3y ago
    While again i dont disagree with your conclusion, i believe your arguing here is flawed. The derivatives can and do move the price significantly. JPMorgan payed quite hefty fines for manipulating the precious metal markets (as well as treasuries) through spoofing¹. Thats now happening by dumping significant volumes of derivatives onto the market at times its especially thin. Which can be in the order of magnitude of yearly productions. Combining this with bots trading trends prices can be moved significantly. 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-idUSKBN26K325 https://www.reuters.com/article/jp-morgan-spoofing-penalty-i...