Deferred settlement accounts
are normally operated on the basis of loco London
but are available in all markets. Thus a Middle East trader might buy 2,000
ounces in his morning from a Hong Kong trader, sell 2,000 ounces in London during
his afternoon and buy it back again from New York during his evening. All the
trades pass through the one deferred settlement account held in London and there
is no movement of dollars or gold. This system is also known as metal
account.
Deferred Settlement
An arrangement, much used
in the London gold market, whereby settlement
of both sides, of metal and money, of a spot contract is deferred on a day-to-day
basis.
For example, a trader buys
2,000 ounces of gold spot at $300 per ounce.
On the spot date, normally two working days following the deal, instead of dollars
being paid and the gold being delivered, the trader’s dollar account will be
debited with $600,000 and his metal account will be credited with 2,000 ounces
of gold. Interest will be charged when the dollar account is in debit and paid
when it is in credit.