*Breaking: The Comex Confirms That Its Gold and Silver Inventory Reports Are Fraudule

That's the whole point of the Futures Markets...you don't need ANY "product" as long as everyone is willing to settle in cash. "Naked Shorts" are contracts people sell who don't own any product. They're simply on the hook to settle up (in some fashion) before the contract expires.

This happens on a daily basis, but Silver-Bugs will have you believe the silver market is being manipulated and the sky is about to fall...driving prices to astronomical new highs! ...and people believe it because they WANT to believe it.

WooHoo!!! Let's get a stack'n! :hail:

 

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To create a further parallel which might be more acceptable:

Mortgage lender (A) offers $500k lending facility to home-buyer (B) with expectation to pay 3% APR rolled into an amortized payment schedule over a set period. The house is placed as security against said facility.

Interest rates rise, and A needs to find cash without taking out too many loans itself due to regulations. A sells B's mortgage paper to a third credit lending party (C) at a discount (after accounting for payments already made).

Interest rates drop (return to the original credit environment), and C decides to resell the paper at a profit to D.

Basically, the mortgage is a promissory note (contract) secured by a house (commodity).

While the commodity does secure the contract, the existence of the commodity is no longer pertinent to fulfillment of the contract.

In essence, that is a CME futures contract: A promise to deliver a commodity at a future date at a fixed price. As a term of the contract, the buyer accepts that sometimes delivery will be in the form of net cash difference between current market price at contract price.

 

Similarly, the seller of a short contract can simply purchase an offsetting long contract (hopefully at a lower price) then he/she has no obligation to deliver.

...of course, you could always sue yourself to force delivery.

 

I know you were joking, but offsets are by definition not enforcable. On CME markets, if you purchase an offset you do not have to deliver to anyone, (including yourself). This is, of course, unless on the COMEX the buyer pays full cash up front to take physical delivery. In that case, its expected that you have to make delivery, unless of course YOU pay full money down to purchase a physical delivery, in which case the person you bought it from would deliver to whom you sold it to, and you are still a wash.

My understanding anyway.