NEW DELHI(PTI): Although gold has lost its significance as a “monetary anchor,’ the yellow metal has not lost its luster since a global market for it as an asset in its own right has emerged, the International Monetary Fund (IMF) has said.

In the latest occasional paper by a senior fund economist, Gary O’Callaghan, the fund said a global market for gold as an asset in its own right has developed, remaining open round the clock and using a full range of derivative instruments.

Besides the continuing demand for physical stocks of gold, markets have been developing over the past several years for derivative physical instruments, including loans and swaps and forward sales, as well as for paper instruments, he said.

Though the global monetary system is no longer attached to a golden anchor, O’ Callaghan said

Almost one third of the world’s monclary reserves were still being held in the form of gold in 1991.

O’ Callaghan said gold still remains highly attractive as a store of wealth and large stocks were being held for investment purposes, which could influence prices substantially more than simple additions to the annual supply from new production.

Though theoretically the annual supply of bullion should have equal turnover and demand, it is impossible to estimate turnover and equally impossible to estimate all sources of annual supply to the markets.

As such, 0’ Callaghan said, analysts have confined themselves to estimating sources of supply of new gold and have augmented this figure with estimates of major changes in the composition of existing gold stocks.

Market analysts had estimated an average net bullion supply to the private sector of 2,530 tons a year during 19851991. South Africa continued to be the dominant producer, accounting for about one third of the total, followed by the erstwhile Soviet Union, which supplied 10.3%.

According to the economist, an estimated 2,350 tons or roughly 93% was absorbed annually over 198591 for fabrication of jewelry and omaments, implying net private bar hoarding of about 180 tons or seven per cent.

Existing gold stocks have a ‘significant’ influence on annual market supply on prices, he said, adding that at the end of 1991, estimated cumulative gold production was over 100,000 tons and the gold stock was almost 60 times the annual supply of new gold from mines.

Central banks the world over and official monetary institutions hold about one third of these stocks, which, valued at a market price of 350 dollars an ounce, would be worth 330 billion dollars. Thus, despite their passive role in the gold market, ‘central banks mainlain considerable influence,’ he said.

Though the former Soviet Union is estimated to be the world’s second largest producer of gold, the former USSR has long maintained ‘absolute secrecy’ regarding its annual gold production, stocks and sales to the west

’ Callaghan said though the industry consensus before 1991 was that Soviet reserves totalled about 2000 tons at the end of 1989, recently available information to. The IMF showed this figure could be as ‘low’ as 290 tons.

Quoting Gold Fields Minerals Services limited (GFMS) for estimating bar hoardings, the fund economist said about 25% of accumulated gold is thought to be in private stocks and theoretically was available to enter the market in response to price changes.

Combing the available information on gold flows, he estimated the combined market supply of

Gold was 3,225 tons last year, with Zurich accounting foralmost30% of the total (912 tons), New York (443 tons), Hong Kong (396 tons), Singapore (215 tons) and the rest divided among a host of other regional markets.

Stating that the gold market operates from three major locations, he said each one serves a particular function, The London market, for instance, determines spot prices of gold, the New York futures market speculates on the spot prices and physical gold is shipped largely through Zurich.

According 10 the fund economist, under the newly instituted two tier market in 1968, private individuals were permitted to trade freely in gold in the London market, but central banks could trade only with each other and only at the official price.

Since 1968, Zurich has become the largest entrepot for new gold and world’s largest storage center for new gold, The Zurich gold pool is still thought to handle most new gold sold on the world market from South Africa and the former USSR.

Article extracted from this publication >>  December 10, 1993