Below's Why the Gold and Silver Futures Sector Is sort of a Rigged Casino...

A respectable amount of Americans hold investments in silver and gold in one form and other. Some hold physical bullion, and some opt for indirect ownership via ETFs or another instruments. A very small minority speculate through the futures markets. But we frequently directory the futures markets – why exactly is always that?
Because that is where cost is set. The mint certificates, the ETFs, and also the coins in an investor's safe – them all – are valued, a minimum of in large part, using the most recent trade within the nearest delivery month with a futures exchange like the COMEX. These “spot” cost is the ones scrolling over the bottom of your respective CNBC screen.
That helps make the futures markets a tiny tail wagging a lot larger dog.
Too bad. A more corruptible and lopsided mechanism for price discovery has never been devised. The price reported on TV has less about physical supply and demand fundamentals and more to do with lining the pockets with the bullion banks, including JPMorgan Chase.
Craig Hemke of TFMetalsReport.com explained in a very recent post how a bullion banks fleece futures traders. He contrasted buying a futures contract with something more investors may well be more familiar with – buying a stock. The quantity of shares is bound. When a trader 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 easy price discovery.
Not so in a very futures market such as the COMEX. If a trader buys contracts for gold, they don't be paired with anyone delivering the particular 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 in the bullion bank's vault by the thinnest of threads. Recently the policy ratio – the quantity of ounces represented in writing contracts relative to the specific stock of registered gold bars – rose above 500 to a single.

The party selling that paper might be another trader by having an existing contract. Or, as has been happening really late, it could possibly be the bullion bank itself. They might just print up a brand new contract for you. Yes, they can actually do that! And as many because they like. All without placing a single additional ounce of actual metal aside to supply.
Gold and silver are believed precious metals as they are scarce and beautiful. But those features are barely a factor in setting the COMEX “spot” price. In that market, and other futures exchanges, derivatives are traded instead. They neither glisten nor shine as well as their supply is virtually unlimited. Quite simply, this is a problem.
But it gets worse. As said above, in the event you bet around the price of gold by either selling or buying a check here futures contract, the bookie might just be a bullion banker. He's now betting against you with the institutional advantage; he completely controls the supply of one's contract.
It's remarkable a lot of traders are still willing to gamble despite all from the recent evidence that this fix is. Open desire for silver futures just hit a brand new all-time record, and gold just isn't far behind. This despite a barrage of news about bankers rigging markets and cheating clients.
Someday we'll have an overabundance honest price discovery in metals. It will happen when we figure out the game and either abandon the rigged casino altogether or require limited and reasonable coverage ratios. The new Shanghai Gold Exchange which deals in the physical metal itself may be a step in that direction. In the meantime, stick to physical bullion and understand “spot” prices for which they are.

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