How Much Paper Gold Is Being Traded Daily?

The two charts in this article are definitely eye openers.

It is widely known that derivatives are governing today’s markets. The total notional value of derivatives is estimated to be around $700 trillions. As a comparison, the U.S. economy (GDP) is around $17 trillion, while the economy of all countries worldwide (global GDP) is around $65 trillion. So all derivatives worldwide are ten times bigger than the world economy.

The gold market is also dominated by derivatives, or, in our own words, ‘paper gold’. But what is the dollar value of the ‘paper gold’ market? Here is an estimate.

According to the first chart below, courtesy of the king of gold charts Nick Laird (Goldchartsrus), the notional value of daily paper gold trading is around $125.3 billion per day, given a dollar gold price of $1200 /oz. That calculcation is based on the equivalent of 3248 tonnes of paper gold being traded daily. Annualized, we get the ballpark figure of $30 trillion.

Compare that with the value of physical gold in the world, which equals 170 tonnes. Given a dollar gold price of $1200 /oz, all physical (above-the-ground) gold in the world has a value of $6.5 trillion.

Global_Gold_Derivatives_oct2015

The second chart shows LBMA Clearing Statistics plus exchange volumes and open interest converted to tonnes, being traded on a daily basis. The last bart on the chart shows new mine supply.

Global_Gold_Derivatives_Detail_Oct2015

It is aweful to realize how paper gold is overshadowing the physical gold market. Paper gold is even setting the price of physical gold, driven by derivatives trading mainly in the COMEX gold market.

Think about it: How is it possible that derivatives are able to set the price of a physical asset?

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