A respectable number of Americans hold investments in silver and gold in one form or some other. Some hold physical bullion, while some opt for indirect ownership via ETFs or other instruments. A very small minority speculate using the futures markets. But we frequently set of the futures markets – why exactly is that?
Because which is where costs are set. The mint certificates, the ETFs, along with the coins within an investor's safe – these – are valued, a minimum of in large part, depending on the most recent trade inside nearest delivery month over a futures exchange including the COMEX. These “spot” costs are the ones scrolling across the bottom of one's CNBC screen.
That makes the futures markets a small tail wagging a much larger dog.
Too bad. A more corruptible and lopsided mechanism for price discovery has not been devised. The price reported on TV has less to do with physical supply and demand fundamentals and more regarding lining the pockets of the bullion banks, including JPMorgan Chase.
Craig Hemke of TFMetalsReport.com explained inside a recent post what sort of bullion banks fleece futures traders. He contrasted purchasing a futures contract with something more investors is often more familiar with – purchasing a stock. The variety of shares is limited. When a venture capitalist buys shares in Coca-Cola company, they will be paired with another investor who owns actual shares and desires to sell at the prevailing price. That's self-explanatory price discovery.
Not so in the futures market for example the COMEX. If a trader buys contracts for gold, they will not be associated with anyone delivering the actual gold. They are combined with someone who desires to sell contracts, regardless of whether he has any physical gold. These paper contracts are tethered to physical gold inside a bullion bank's vault from the thinnest of threads. Recently a policy ratio – the number of ounces represented on paper contracts relative to the actual stock of registered gold bars – rose above 500 to a single.
The party selling that artikel poker online terbaik paper may be another trader by having an existing contract. Or, as has been happening a greater portion of late, it could possibly be the bullion bank itself. They might just print up a brand new contract for you. Yes, they're able to actually do that! And as many since they like. All without putting a single additional ounce of actual metal aside to provide.
Gold and silver are thought precious metals because they're scarce and exquisite. But those features are barely an aspect in setting the COMEX “spot” price. In that market, and also other futures exchanges, derivatives are traded instead. They neither glisten nor shine and their supply is virtually unlimited. Quite simply, this is a problem.
But it gets worse. As said above, should you bet around the price of gold by either selling or buying a futures contract, the bookie could just be a bullion banker. He's now betting against you by having an institutional advantage; he completely controls the supply of the contract.
It's remarkable a lot of traders continue to be willing to gamble despite all from the recent evidence the fix is within. Open curiosity about silver futures just hit a brand new all-time record, and gold isn't far behind. This despite a barrage of news about bankers rigging markets and cheating clients.
Someday we'll convey more honest price discovery in metals. It will happen when individuals figure out the game and either abandon the rigged casino altogether or insist upon limited and reasonable coverage ratios. The new Shanghai Gold Exchange which deals inside the physical metal itself is often a step in that direction. In the meantime, stick with physical bullion and understand “spot” prices for which they are.