Jewelry suppliers in India have kept a lid on their stockpiling, even ahead of the annual peak in demand due with Diwali in mid-November. Private households (aka "retail" investors) raised their demand in September, but not dramatically, as Bullion Vault's own Gold Investor Index shows. And amongst those central banks who declare their hand each month to the International Monetary Fund (ie, everyone but China), September 2012 saw them pretty much flat overall as a group.

So you have to guess, therefore, that the so-called "smart money" was the big buyer, helping drive the daily value of gold bullion traded through London's 11 big market makers more than 35% higher in September from August to its highest level since summer 2011's all-time peaks.

Those 11 market makers – led by global investment-bank and London vault operators HSBC and J.P.Morgan, and all guaranteeing to quote firm Gold Buying and selling prices throughout the day – shifted some $39.2 billion-worth of gold between them on average each day last month. Make a guess at all of September's other gold trading done via smaller bullion banks and dealers, all still quoting prices for settlement in London's secure and accredited vaults, and the total could have reached to $350bn. That's the multple suggested by spring 2011's market-wide survey, undertaken by the London Bullion Market Association on behalf of the World Gold Council.

The aim of that report, in which the LBMA surveyed all its members, was to gauge the true depth and liquidity of the physical gold market. The previous best guess-timate – of a multiple between 3 and 5 times the average daily turnover reported by the big 11 banks – now looks it should stand nearer 8 times. Especially when gold trading gets hot, as it clearly did in September.

Some of that hot money has turned tail since. This month's pullback so far has taken Dollar-gold 4% lower to $1700 per ounce. Perhaps hedge funds, bank traders and other private institutions simply booked early profits off their September gold trading. Or perhaps they're disappointed that QE3 didn't instantly send inflation soaring.

Give it time. "There is a great deal of ruin in a nation," as Adam Smith calmly replied when told in October 1777 that Britain was ruined by its defeat by the American rebels at Saratoga. Yes, it took another 170 years for the British Empire to crest and collapse. But today's limitless zero-rate money won't have anything like as long.

Adrian Ash

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich and store it securely with insurance included for as little as $4 per month.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

-- Posted Friday, 26 October 2012 | Digg This Article