Gold Derivatives: Gold Derivatives: - World Gold Council

CONTENTS
Foreword by Haruko Fukuda, Chief Executive, World Gold Council ....................7
About the author ...........................................................................................8
The steering group .........................................................................................8
Executive summary .....................................................................................9
Chapter 1 The physical gold market ...........................................................15
1.1 Production ...............................................................................15
1.2 Consumption ...........................................................................21
1.3 Investment ...............................................................................23
1.4 Data Issues ..............................................................................28
Chapter 2 The paper market ......................................................................29
2.1 What makes gold special? .........................................................30
2.2 Gold derivative contracts ..........................................................32
2.3 The market ..............................................................................37
2.4 Downstream hedging ...............................................................40
2.5 Speculative traders ....................................................................41
2.6 The banking sector ...................................................................43
2.7 Producer hedging .....................................................................46
Chapter 3 The debate ................................................................................53
3.1 The debate outlined .................................................................54
3.2 The impact of derivatives generally ............................................56
3.3 What is special about gold ........................................................57
3.4 The simple consumption model ................................................58
3.5 Other effects of derivative markets .............................................60
Chapter 4 The empirical evidence ..............................................................63
4.1 The impact of short-selling on the price of gold .........................63
4.2 The impact of hedging policy announcements ...........................68
Chapter 5 The gold lending market and its stability ...................................73
5.1 Scenario 1: A cutback in lending ..............................................74
5.2 Scenario 2: A cutback in demand for borrowing ........................80
5.3 The empirical evidenc from lease rates .......................................82
Gold Derivatives: The market impact 3