In this article's Why the Gold and Silver Futures Market Is Like a Rigged On line casino...

A respectable variety of Americans hold investments in silver and gold coins in one form and other. Some hold physical bullion, although 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?
Because that is certainly where cost is set. The mint certificates, the ETFs, as well as the coins in an investor's safe – them all – are valued, at the very least in large part, depending on the most recent trade within the nearest delivery month over a futures exchange such as the COMEX. These “spot” prices 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 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 could be more familiar with – purchasing a stock. The amount of shares is fixed. When an investor buys shares in Coca-Cola company, they should be paired with another investor who owns actual shares and really wants to sell on the prevailing price. That's straight forward price discovery.
Not so in a very futures market for example the COMEX. If an investor buys contracts for gold, they don't be combined with anyone delivering your gold. They are paired with someone who really wants to sell contracts, no matter if he has any physical gold. These paper contracts are tethered to physical gold in a bullion bank's vault from the thinnest of threads. Recently the coverage ratio – the quantity of ounces represented in writing contracts relative to your stock of registered gold bars – rose above 500 one.

The party selling that paper might be another trader by having an existing contract. Or, as has been happening really late, it could be the bullion bank itself. They might just print up a new contract for you. Yes, they can actually do that! And as many because they like. All without placing single additional ounce of actual metal aside to offer.
Gold and silver are considered precious metals as they are scarce and beautiful. But those features are barely an aspect 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, what a problem.
But it gets worse. As said above, in the event you bet for the price of gold by either selling a futures contract, the bookie could be a bullion banker. He's now betting against you by having an institutional advantage; he completely controls the supply of your respective contract.
It's remarkable read more countless traders continue to be willing to gamble despite all with the recent evidence how the fix is at. Open fascination with silver futures just hit a fresh 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 sport and either abandon the rigged casino altogether or insist upon limited and reasonable coverage ratios. The new Shanghai Gold Exchange which deals in the physical metal itself can be a step in that direction. In the meantime, stick with physical bullion and understand “spot” prices for which they are.

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