Here's Why the Gold and Silver Futures Sector Is sort of a Rigged On line casino...

A respectable variety of Americans hold investments in silver and gold in one form or another. Some hold physical bullion, and some opt for indirect ownership via ETFs or any other instruments. A very small minority speculate using the futures markets. But we frequently directory the futures markets – why exactly is the fact that?
Because which is where costs are set. The mint certificates, the ETFs, and the coins in a investor's safe – these – are valued, at the very least in large part, depending on the most recent trade in the nearest delivery month over a futures exchange like the COMEX. These “spot” cost is the ones scrolling over the bottom of your CNBC screen.
That makes all the futures markets a little tail wagging an extremely larger dog.
Too bad. A more corruptible and lopsided mechanism for price discovery never been devised. The price reported on TV has less to do with physical supply and demand fundamentals and more related to lining the pockets in 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 an angel investor buys shares in Coca-Cola company, they must be paired with another investor the master of actual shares and would like to sell at the prevailing price. That's self-explanatory price discovery.
Not so in a very futures market such as the COMEX. If an angel investor buys contracts for gold, they don't be paired with anyone delivering your gold. They are followed by someone who wants to sell contracts, no matter whether he has any physical gold. These paper contracts are tethered to physical gold in a very bullion bank's vault by the thinnest of threads. Recently the policy ratio – the variety of ounces represented in some recoverable format contracts relative to the specific stock of registered gold bars – rose above 500 one.

The party selling that paper could be another trader with the 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 whole new contract for you. Yes, they can actually do that! And as many as they like. All without placing single additional ounce of actual metal aside to offer.
Gold and silver are considered precious metals since they're scarce and delightful. But those features are barely one factor in setting the COMEX “spot” price. In that market, as well as other futures exchanges, derivatives are traded instead. They neither glisten nor shine along with their supply is virtually unlimited. Quite simply, that's a problem.
But it gets worse. As said above, if you bet on the here price of gold by either buying or selling a futures contract, the bookie might 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 that this fix is. Open fascination with silver futures just hit a new all-time record, and gold is just not far behind. This despite a barrage of news about bankers rigging markets and cheating clients.
Someday we'll have more honest price discovery in metals. It will happen when people figure out the game and either abandon the rigged casino altogether or refer to limited and reasonable coverage ratios. The new Shanghai Gold Exchange which deals inside physical metal itself is often a step in that direction. In the meantime, stick to physical bullion and understand “spot” prices for which they are.

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