< I expect them to reverse this practice so much so, that they not only just deliver into their contracts, but actually buy back (accelerated demand)their forwards (right now all the way out to 2003 would be opportune). That would have a profound effect on gold demand. >
If they close out a forward contract using cash, then what effect would it have on physical gold demand ? The gold has already been sold and they are just exchanging one piece of paper (asset=cash) for another piece of paper (liability=a forward sales contract) It is not like they are going to take the cash, buy physical gold, deliver the physical gold, then get the forward sales contract back. Besides, if they did deliver gold wouldn't the bullion bank just resell it for cash with a net effect on the physical market of zero ? I guess they could eventually give the gold back to the central bank they borrowed it from, but once the "genie is out of the bottle", "cat is out of the bag", or "gold is out of the vault" it might be hard to get back. Maybe the long-term scenario is for central banks to stop selling physical gold (BOE, etc..) and just convert these outstanding gold loans into sales. Miners could cover forward sales, bullion banks could eliminate their risk, and central banks could restate their physical inventories, all without any actual physical gold transactions <weird accounting, eh?> |
