Abstract
Ph.D. (Economics)
As the title suggests, the objective of this thesis has
been to examine the relationship between the physical
and futures markets for gold.
At the end of the 'sixties, when gold was almost completely
phased out of the international monetary system, one
of the major consequences was the establishment of a twotier
market for newly mined gold. The need became apparent
immediately for a free market for the metal to be
established on a global basis. The development of this
market was hampered, however, by the general belief that
the international monetary system would have no alternative
but to restore the international monetary role of
the metal, as well as by the fact that the citizens of
many countries were not allowed to own gold. Moreover,
the relationship between supply and demand on the new market
was rendered very uncertain by the complicated stockflow
relationship of gold, and especially by questions
concerning the possible role of the large quantities of
gold that were stored in the vaults of central banks and
other official institutions. Around 1974, when the physical market for gold had become
more well-established, entrepreneurs in the USA commenced
futures trading in gold as a new venture in Comex operations,
where futures trading had already been in practice
for over a hundred years. Comex became established as
the centre of the emerging international marketplace for
gold.
Chapter II outlines those characteristics of the international
monetary system that still relate to the role of
gold as a monetary commodity, the object being to obtain
a clear picture of the supply and demand relationships
involved. In Chapter III the characteristics, organisation
and functioning of the physical market for gold. are
outlined, while Chapter IV is devoted to a similar examination
of the futures market. Chapter V represents an
attempt to build a bridge between the phenomena described
in the previous two chapters. In a comparison of the two
markets it appeared that the physical market provided
much more sophistication in customized service, while the
futures market offered the participants, i.e. investors
and speculators, regulatory safeguards that may be of more
importance to them. The critical difference between the
physical and futures markets was found to lie in the fact
that futures market participants are not required to quote
two-way prices, whereas those in the physical market have
to be ready to quote two-way prices at any time...