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Alasdair Macleod: The extinction of gold derivatives
By Alasdair Macleod
GoldMoney, Toronto
Thursday, August 5, 2021
This month is the 50th anniversary of the "Nixon shock," when the Bretton Woods agreement was suspended, and the expansion of commercial banking into credit for purely financial activities became central to the promotion of the dollar as the international replacement for gold.
With the introduction of Basel 3, commercial banking enters a new era of diminishing involvement in derivatives. The nominal value of all derivatives at the end of last year amounted to seven times world gross domestic product. While we can obsess about the effects on precious metals markets, they are just a very small part of the big Basel 3 picture.
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However, gold remains central to global money and credit and the impact on gold markets should concern us all. In this article I quantify gold forwards and futures derivatives to estimate the impact of reversing anti-gold policies that date back to the Nixon shock in 1971.
We are considering nothing less than the effects of ending 50 years of gold price suppression. Through leases, swaps, and loans, central banks have fed physical bullion into derivative markets from time to time to keep prices from rising and breaking the banks that are always short of synthetic gold to their customers.
To summarize, the withdrawal of bullion banks from derivative markets is bound to create replacement demand for physical gold that can only drive up the price and further undermine fragile confidence in fiat currencies at a time of rapidly increasing monetary inflation. ...
... For the remainder of the analysis:
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