Wholesale Physical Markets are Broken
By GCRU Gold News on Thursday, January 28 2016, 23:53 - Permalink
The OTC market dwarfs the physical market in terms of size. Any shift in flows from the OTC market to the physical market as a result of a more efficient physical market could have an outsized impact on physical premiums. There are supply constraints in physical markets that do not exist in OTC markets, and given the near-term inelasticity of supply, the way to accommodate higher demand would be higher premiums. This is somewhat counter to conventional thinking that electronic trading reduces margins.