BULLION MARKETS 2009

further details and graphs on:

http://www.ifsl.org.uk/upload/Bullio...

The bullion market is a unique 24 hours per day market for the purchase and sale of gold and silver. The market’s special character is based on the various uses of gold and silver as industrial and retail commodities, investments and monetary assets. This IFSL report gives an overview of the global bullion market and London’s importance as the largest market in the world for gold and silver trading.

SUMMARY Gold and silver trading has posted record activity since the start of the credit crisis. The traditional “safe-haven” appeal of precious metals has attracted many investors to this asset class. Gold recorded an all-time high in March 2008 of $1,011 per ounce (London PM fix) before easing back by the end of the year to around $870 per ounce. Silver posted prices above $20 per ounce during the year, a level not seen since the 1980s (Chart 1).

IFSL estimates that the market value of above-ground gold stocks totalled over $4.5 trillion at the end of 2008 with turnover of $20.2 trillion during the year (Charts 2 and 4). The value of turnover increased over 50% on the previous year (20% in millions of ounces (moz)), and more than tripled (up 52% in moz) on the level three years earlier.

The value of above-ground stocks and turnover of silver totalled $10.8bn and $2.6 trillion respectively in 2008 (Charts 3 and 4). The value of near-market silver or silver that is easily available from above ground stocks is however much higher. The value of turnover increased over 30% on the previous year (24% in moz), and nearly tripled (up 37% in moz) on three years earlier. The bulk of trading in gold and silver takes place on the over-the-counter (OTC) market, predominantly in London.

Exchange-traded transactions have steadily grown in recent years with Comex in New York, Tocom in Tokyo and more recentlyMCX in India generating the bulk of activity. Precious metals are also traded as a security on the London, New York, Johannesburg, Australian and a number of other stock exchanges.

OTC trading Although the physical market for gold and silver is distributed globally, most wholesale OTC trades are cleared through London. The average daily volume of gold and silver cleared at the London Bullion Market Association (LBMA) in November 2008 was 18.3m ounces (worth $13.9bn) and 107.6m ounces ($1.1bn) respectively. This means that an amount equal to the annual gold mine production was cleared at the LBMA every 4.4 days, and to the annual silver production every 6.2 days.

Trading on exchanges has grown in importance in recent years. Futures and options trading of gold on exchanges increased more 80% in 2008 to reach a record $5.1 trillion. Trading of silver increased 60% to a record $1.2 trillion. Exchange traded gold and silver funds (ETFs) have attracted record investments since their introduction in 2003 and have been the strongest source of growth in demand since then. ETFs accounted for 59% of identifiable gold investment and 20% of demand in the first three quarters of 2008.