What a Run on Gold Bullion Banks Could Look Like

Without any particular intention of bolstering gold market conspiracy theories, it is interesting to take a look at the London Bullion Market Association’s recent decision to go dark on what have been — for 13 years — publicly available statistics regarding the trade between its member bullion banks.

Here’s an assessment (with references removed, but available in the original post) from the decidedly-biased Gold Anti-Trust Action Committee (GATA):

“When the LBMA first made its trading statistics available in January 1997, observers and analysts were shocked. No one could reconcile the statistics with other market data, nor comprehend how the bullion banks could be trading on a net basis more than 240,000 tonnes of gold annually while the global mine output was only 2,400 tonnes.

“Over the years the furor over these statistics had subsided until the end of 2009, when I commenced writing about my studies, showing that the statistics can be reconciled with other market data if the bullion banks are operating a fractional-reserve bullion banking operation with a recklessly low reserve ratio. I have also shown how the price of gold is suppressed because 45 ounces of demand are being diluted to result in purchase of only 1 ounce of real metal. If instead all 45 ounces were to be sourced and purchased, the gold price would be multiples of the current price…

“…In June the LBMA trading statistics showed that in May 2010 the average net daily trading in gold by LBMA member banks jumped a massive 50 percent from the month before to 24 million ounces each day from 16 million ounces each day. That translates to $7.5 trillion annually. If an operation is running on a razor-thin fractional reserve basis, such step changes are often fatal. It appears that a run on the bullion banks has commenced.”

At this time, there’s not much additional coverage of the London Bullion Market Association’s change in protocol. However, in conjunction with the Bank of International Settlements’ recent, seemingly unintentional, and certainly uncomfortable, disclosure of 346 tonnes in gold swap operations, it seems worthwhile to at least be aware of larger than average movements in the murky background of the international gold market.

You can read more details in a GATA post on the LBMA’s unusual step of blocking access to statistics.


Rocky Vega,
The Daily Reckoning