Gold price manipulation discussed in the UK House of Commons

GoldNRollGoldNRoll Posts: 233 Bronze ✭✭✭
https://hansard.parliament.uk/Commons/2019-07-08/debates/A6D6620D-4A27-4E45-AE04-C3D4A1DD1EC6/PreciousMetalMarkets

Q: "Fourthly, it is estimated that the quantity of so-called paper gold—that is, delivery contracts for gold—is approximately 100 times the quantity of available physical gold. That is not peculiar to the precious metals market; it happens with other commodities as well, but it is nevertheless a noteworthy situation. I accept that it is unlikely that most such contracts will end up requiring the delivery of physical gold, but what assessment have the authorities made of the risk that if delivery is required, those requirements might not be met? We have to take into account the steady increase in demand for gold—and, indeed, all precious metals—by states as well as by industry.
I suggest that, in addition to answering these questions, the Government commission an independent inquiry or review into the bullion market, particularly in the UK. Gold and silver are not simply commodities like coffee, cocoa, sugar or copper, vital as those are; they are a bulwark of the global financial system, the importance of which is possibly increasing."

A: "My hon. Friend raised the potential risk of “paper gold” contracts, which are designed to reflect the market price of gold. Investors may use the contracts for hedging or speculative purposes, and without any overall intention to receive or deliver the physical asset. For example, a customer may have a claim on a bullion bank account provider for an amount of gold without physically possessing it.
This type of activity, relating to unallocated gold, does not guarantee an equal exchange for metal. Therefore, the risk that delivery is not met as part of the contracts ​should not undermine the overall market, given that this delivery is not guaranteed and the risk is priced into the instrument."

Given that the gold spot price is mainly set by the price of comex/globex futures and london forwards both being overwelmingly backed by unallocated accounts, we can logically conclude that the risk of non-delivery is priced in the gold spot price so the markets are undermined by unallocated gold.

Currently, the price of physical gold is lowered to the price of unallocated contracts. When the request for physical delivery will tremendously increase, the divergence of prices will be reflected in huge premiums on bullion coins and bars, above spot price. That it should also reflect in huge premiums when buying into depositories like Goldmoney.
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