- You don't have to give Jeff credit/exposure
- It is a more recent reference
- It is from a Central Bank
15 December 2014
Reserve Bank of India 92:1 meme
One of the most persistent memes in the blogosphere is the supposed massive fractionalisation that goes on in bullion banking. Historically bloggers used Jeff Christian's 100:1 statement as proof but I rarely see that mentioned these day. Instead, bloggers focus on the following from a Reserve Bank of India Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loan NBFCs (non-banking finance companies) in India dated January 2013, page 58:
"Interestingly, in the Financial Markets, the traded amount of ‘paper linked to gold’ exceeds by far the actual supply of physical gold: the volume on the London Bullion Market Association (LBMA) OTC market and the major Futures and Options Exchanges was over 92 times that of the underlying Physical Market (Table 5.1)."
The popularity of the 92:1 fractional meme I suspect is due to:
The really amusing thing about that implied inside information is that if you actually look at the report on page 58, which I bet few of the commentators referring to the figure have, you find that in support they have a table showing figures on physical vs futures and LBMA volumes sourced from CPM Group, Jeff Christian's firm. So the 92:1 meme is not confirmation from the Reserve Bank of India about the fractional bullion banking system but just a reference to trading volumes in different markets using figures from a source that goldbugs hate and distrust.
On that last point, for readers new to the issue of confusing turnover with fractional, I have covered that a number of times, here on Sprott and here on Rob Kirby making this mistake, as well as at the 100:1 link in this post above. I would also recommend my series on fractional reserve banking, particularly this one which discusses the difference between turnover, leverage and fractional.