Some interesting information re the workings of the LBMA in London and gold transfers. Of interest to me was, "While analysts say this demand for physical gold is now topping out, fund buying of gold is beginning to pick up once again, Murray said."

http://in.reuters.com/article/domest...
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INTERVIEW-LBMA transfers fall in Nov as funds exit market
Tue Dec 16, 2008 8:42pm IST

By Jan Harvey

LONDON, Dec 16 (Reuters) - Waning fund interest in gold as the financial crisis hit markets was behind a near-25 percent fall in the number of gold transfers between London Bullion Market Association members in November, the LBMA's chief executive said.

However, bullion vaults remained "very busy" as buyers in India and the Middle East took advantage of lower prices to snap up gold, Stewart Murray told Reuters.

"In October, when the (financial) crisis was really affecting all financial markets, there was a strong tendency for investors to get into cash, and that applies whether they were invested in shares or precious metals," Murray said.

"They were essentially closing positions in gold and silver," he said. "On the one hand that naturally pushes price down, but it also results in less rolling of positions, so you get less clearing at the end of day.

"In November... investors were not actively getting out (of the market), but they were sitting on their hands and waiting to see what happened."

Statistics released by the LBMA on Monday showed gold transferred between accounts held by bullion clearers fell 23.6 percent to a daily average of 18.3 million ounces in November from a month earlier, and were down 27.2 percent year-on-year.

But the market for physical bullion outside London, which is not reflected in the LBMA's clearing statistics, benefited from falling prices and kept association members busy, Murray added.

PHYSICAL FLOW

"Clearing statistics don't capture physical flow of metal to the likes of India, and that has certainly been very strong, starting in October when the price started falling," he said.

"The houses in London that do the physical side of the business will have been very busy."

Spot gold <XAU=> prices fell 17 percent or nearly $150 an ounce in October as stock markets plummeted in the wake of U.S. bank Lehman Brothers' failure. Investors sold out of assets such as bullion to cover losses on other markets and raise cash.

Smaller investors sought out gold coins and bars as a safe haven from financial market uncertainty.

According to the World Gold Council, investment in coins and bars was the single biggest factor pushing up gold demand in the third quarter, with net retail investment in such products more than doubling from a year before to 232.1 tonnes.

While analysts say this demand for physical gold is now topping out, fund buying of gold is beginning to pick up once again, Murray said.

"There is some evidence that over the last couple of weeks (investors) have started to come back into the market," he said.

According to the LBMA, most global over-the-counter gold and silver trading is cleared through the London bullion market clearing system, with deals struck throughout the world settled and cleared in London.

The London bullion market relies on a daily clearing system of paper transfers. Members offering clearing services use the unallocated gold and silver accounts they maintain between each other to settle mutual trades, as well as third party transfers.

The clearing statistics measure how much gold and silver are transferred on a net basis between accounts held at the bullion clearers. They do not cover movements of physical gold arranged by clearing members in locations other than London.

(Editing by Sue Thomas)