Budapest Business Journal: A paper gold crisis?


By Les Nemethy and Alberto Scalabrini
Budapest Business Journal, Hungary
Saturday, October 17, 2020

There is vastly more "paper gold" (exchange-traded funds, gold contracts, futures, options, and the like) than physical gold. The relative values are put at some $200-300 trillion for the former, according to, compared to about $11 trillion of physical gold (of which central bank holdings would constitute around $1 trillion), according to

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The majority of paper gold is in the form of contracts traded on the London bullion market and Comex (part of the Chicago Mercantile Exchange), where bullion banks are engaged in fractional-reserve bullion banking. In the same way that banks have liabilities that vastly exceed reserves, so too bullion banks issue gold contracts that vastly exceed the amount of gold they hold on deposit.

Similarly, the majority of gold ETFs have only a fraction of the gold on hand, compared to the face amount of gold ETFs in circulation. Conventional banks are quite heavily regulated, hence relatively transparent, whereas bullion banks are lightly regulated, and opaque, notes.

Wherever there is fractional-reserve banking, there can theoretically be a run on the bank, particularly where there is a sudden loss of confidence. ...

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