by Ram ben Ze’ev
Most gold trading today is not about bars moving from vault to vault; it is about claims on gold—promises, not metal. Futures, forwards, options, ETFs, and “unallocated” accounts are convenient, liquid, and, in quiet times, efficient. But they are still paper. If you are a smaller retail investor, that distinction is not academic; it is existential.
The Two Markets: Paper vs. Metal
There is the paper market, where vast volumes of contracts are created and cancelled with barely a single bar touched. Then there is the physical market, where deliverable bars and coins exist in finite quantities, in specific vaults, with serial numbers and bar lists. The paper market is designed to cash-settle most of the time. The physical market is designed to deliver—but only to those who actually own specific metal.
The London Bullion Market Association (LBMA) and the COMEX futures exchange in New York dominate global gold trading. On COMEX, for example, the open interest (total outstanding contracts) often represents hundreds of millions of ounces. Yet the actual registered physical inventory in COMEX vaults is typically in the single-digit millions of ounces. Similarly, in London, the daily notional turnover in “unallocated” accounts far exceeds the physical gold held in vaults. Analysts have often estimated that there are anywhere from 50 to 100 ounces of paper gold for every ounce of physical that could theoretically be delivered.
Why Paper Usually Sets the Price
Because paper trading is larger and faster, it often sets the spot price seen on screens. This works until real-world constraints intrude: refinery capacity, bar formats, transport, vault locations, and the plain fact that not all claims are backed one-for-one by deliverable bars.
What Happens When Many Demand Delivery
When delivery demands spike, the system has safety valves:
All of these are legal and disclosed. None of them put gold in your hand.
Is There “Enough” Gold?
There is plenty of gold in the world if you count jewellery, central bank reserves, and industrial uses. But only a small float exists as deliverable bars in the right form and place. The stack of paper claims can far exceed that float. If many insist on delivery at once, the answer is simple: no, there is not enough—not at the price and timetable implied by the paper market. So, is there "enough" gold?
No — not in the sense of backing all outstanding paper claims. Global above-ground gold stocks are estimated at around 200,000 tonnes, but only a fraction of that is in deliverable form (London Good Delivery bars, for example) and in the right locations. The deliverable float is a small subset of total stock. If everyone demanded their allocated gold simultaneously, the system could not deliver — not even close. That’s why it relies on confidence and the assumption that the majority will roll over, offset, or cash-settle their positions.
The Hidden Risks Most Retail Buyers Overlook
The Stress Scenario
A currency shock, a geopolitical jolt, or a credibility event can trigger a wave of delivery requests. Then come delays, premiums, cash settlements, and a scramble for the few bars available. Prices gap higher for physical even as paper markets try to contain the move. Think of it as musical chairs: many players, very few chairs. When the music stops—and it will—you are not getting a chair unless you already occupy one.
Advice to Smaller Retail Investors
If you are buying gold to manage tail risk, you should prioritise certainty over convenience. That means take delivery—or, at the very least, hold your metal in allocated, titled storage that allows immediate withdrawal on demand. Still, I repeat: take delivery. And if you are in the UK, the EU, or the USA, you can start small with a trusted supplier.
Practical Checklist (One Path, Keep it simple):
Bottom Line
Gold’s role is to remove counterparty risk. If you hold a promise, you still have a counterparty. If you hold a bar, you do not. In rising-price environments the gap between paper and physical can widen brutally. Protect yourself now, not later. This market is a game of musical chairs, and when the music stops—and it will—you are not getting a chair unless you already have the gold in hand.
In the UK we recommend Atkinsons Bullion & Coins.
This is a personal commentary and not investment advice. Do your own due diligence and act prudently.
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Bill White (Ram ben Ze'ev) is CEO of WireNews Limited, Mayside Partners Limited, MEADHANAN Agency, Kestrel Assets Limited, SpudsToGo Limited and Executive Director of Hebrew Synagogue
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