“If you own gold, you have money. If you don’t own gold, you have a problem” – (James Turk). To that I’ll add: If you don’t have physical possession of your gold, you do not own gold
A significant amount of gold is held as “unallocated,” which is when an entity buys gold and establishes an account that is credited with value of the gold purchased. A gold bar is not actually stored on behalf of the “buyer.” Rather the buyer has a “promise” from the bank vault custodian to deliver the bar or its cash equivalent when the entity decides to either take delivery or “sell” the bar.
Because an actual bar in the buyer’s name is not sitting in the custodial vault, the buyer does not incur storage or other related fees. BUT, the buyer does not have legal title of ownership to anything other than an account showing the value of the “gold.” Like a checking account, the bank is entitled to use the proceeds from the gold “purchase” for its business operations.
This arrangement is really no different than than Comex paper gold contract long position. In other words, an unallocated gold account is nothing more than security interest in the account – it’s a paper derivative.
In this regard, the LBMA is little more than a fractional gold banking system, just like the Comex. The advantage of the unallocated gold account system is that the entities that run the a.m./p.m. London price fix can use unallocated gold offerings to give the illusion that the price fix is based on bona fide demand and supply of actual physical bars. Yet, very little physical gold changes legal ownership or is moved from the unallocated accounts to allocated accounts when the fix process clears.
Ronan Manly has been knocking the cover off the ball with his research and analysis which exposes the fraud and corruption engulfing the London gold market. In this must-read article, Manly explains the process by which the LBMA uses its twice-daily price “fix” – which is indeed a “price fixing operation” and little more – to artificially suppress the spot “price” of gold:
As the gaping spread between London (LBMA) spot gold prices and front-month COMEX gold futures prices persists for a sixth week triggered by the bullion bank EFP liquidity blow up on Monday 23 March 2020, one unappreciated aspect of this gold price discovery scandal is that daily London LBMA Gold Price auctions are deliberately ignoring COMEX gold prices when setting the Opening Price (starting price) in the twice daily gold price auction.
His work explains the factors which have caused the unprecedented price differential between the “spot” price and the Comex futures price curve. You can read the entire piece here: LBMA Gold Price benchmark ignoring market conditions, short-changing investors.