Loading ...Bullion Banking Mechanics. Very Long Article
parts
The term bullion bank can be applied to banks which are involved in some or all of the following activities in the precious metals markets: trading, clearing, vaulting, physical metal distribution, risk management, intermediating between metal lenders and borrowers, mine finance and hedging, financing fabricators, providing consignment stocks, generating precious metals market research. This list is not exhaustive.
While some of the above financial market activities sound innocuous and would be expected to be normal activities of any merchant bank / investment bank involved in the financial and commodities markets, the unique structure of the modern-day global wholesale bullion markets as well as the unique monetary characteristic of gold and silver mean that it’s important to appreciate how bullion banks carry out these activities.
Since unallocated account transactions in the London bullion market are rarely used for physical delivery of gold, the trading of such paper gold diverts demand into paper gold that would otherwise have been channelled into real physical demand. Therefore, the price of physical gold is not reflecting the demand that it would have reflected if paper gold alternatives did not exist.
https://www.bullionstar.com/gold-university/bullion-banking-mechanics#heading-19