"For every purchase of paper gold, both the London Bullion Market Association (LBMA) and COMEX are supposed to only have 10 percent allocated contracts backing them, and the other 90 percent is held in unallocated accounts."
I am surprised if the interest in delivery is as high as 10%!
The vast majority of futures positions on these exchanges are held by derivative book runners. They are only interested in exposure to the gold price movements. If they hold any physical gold they are charged the cost of funds, custody, insurance and transaction costs.
Gold doesn't pay interest. The fees for leasing gold do not go close to covering their holding costs. It is more cost efficient for them own the futures contract than the physical commodity. Most of the long and short contracts are matched out before the close, when usually both parties rolling to the next liquid contract.
Evidence for this: Watch the open interest as the next major contract closes and you will notice that it drops sharply over the last weeks of trading. Only part of what is left over is for delivery. There are often residual balances of unmatched positions that are cancels and settled by cash difference.
Do not assume that everyone think about the market in the same way you do! In volume terms, most of them don't.
