”Please continue,” she said over her shoulder as she poured each of them a glass of the sparkling water.

”Second,” Tycho continued, holding two fingers up, “the London gold market uses both unallocated and allocated gold. So, on the one hand, it creates a market for a gold asset that specifically identifies each gold bar with a specific owner, in the case of allocated gold.”

“How does this work?” Bette asked as she gave him a glass of sparkling water. He smiled his thanks, as she walked to her chair, opposite his.

He answered, after taking a sip of water, “Allocated gold is essentially held in separate accounts; it cannot be pooled with gold from others.”

“And unallocated gold?”

“Well, unallocated gold is held in a general pool by the bullion dealer and the buyer or seller has a general claim to the metal, but not to a specific gold bar.  It works the same way as putting dollars, pounds or euros into the bank. Once deposited, the money joins the pool of other funds in that bank — so you can withdraw the same amount of money you put in, but you won’t necessarily get the same exact bills that you deposited.”

“Got it.”

“Okay. So now let’s look at how the true market makers are behaving.”

Bette set her glass down on the table leaned forward, and then said, ““I’m guessing governments.”

“Right. Of the top ten nations keeping gold as a significant share of their assets, you won’t believe that the US, Germany, Italy, and France lead everybody. Even if their currencies have been off the gold standard for years.”

“What about the Chinese? The Russians?”

Tycho leaned forward also, “Interesting that you should ask, because they’ve been massive buyers of gold over the past 10 years or so. Officially, China is said to hold just over 1000 tonnes of gold. But most everyone in the market believes it is closer to 3000 tonnes. Maybe more. If you consider that there are only 33000 tonnes of gold in total in the world, officially, this means China rapidly acquired close to 10% of all official gold holdings in the world. And holds about $3 trillion in US treasuries also.”

Bette pursed her lips, “Maybe they’re just prudent. Or smart. Or preparing for something.”