Discussion in 'Bullion Investing' started by SilverForLife, Jun 10, 2013.
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for once... please?
There are two (2) silver markets sharing the same space...one that trades physical silver between owners and users and another that trades the "idea" of silver...settled in some currency. Why does everyone confuse these two markets? Why does everyone think a futures contract has to (or should) be settled in physical silver?
Are you serious? I can go over it for you if you are, the notion of basis, etc. I cannot tell.
Well, that sounds like the same sort of boilerplate that I see on all sorts of mail, email, and so forth. I think it's a little silly to jump on something this common and start screaming that it's OH NO AN ADMISSION THEY'RE LYING TO US -- certainly not the silliest thing I've seen from the one-note metals-to-the-moon sites, though.
On the other hand, one wonders what communications can't be disclaimed into nothingness. I mean, could I put that same boilerplate on my tax return, and expect it to stand up in court? :devil:
This is how I understand it works...
The idea that every silver contract has to be covered by a corresponding amount of physical silver in a Comex warehouse is simply incorrect. Theoretically, a futures market can function fine without ANY physical commodity...as long as all contracts are settled in cash.
Yes, might thoughts exactly. You should see all of the boilerplate non-disclosure crud on CPA audits, legal disclosures, etc. Everything in business nowadays has such disclosures. Frankly I am surprised such a thing was not on the statements 5 years ago. Sounds to me like their legal department was behind. Heck, we went through eveything at work and had such stuff put on all of our documents a decade ago.
But if there is too far a spread between the futures and the cash market, (basis), then the futures risk becoming irrelevant. This is why they allow physical delivery if you pay up front, to try to keep the markets in line. A futures market that does not track physical to a high degree are useless to those wishing to hedge their physical position, which is the main customer for the futures market.
WHY there are tons more futures than physical commodity is a different story, one that I can get into if you are really interested. Short answer is that it provides better price discovery and liquidity to the market.
Because if you can't settle a contract with the item it is influencing the price for then it is fraud. Regardless of the rules on the COMEX, it's a simple fact of life. In the real world you can't sell something you don't own, and you can't buy something without the money for it.
No it is not
Its different terminology, but what if houses could only be purchased by total submission of personal money at time of buying? Because buying anything on credit ( mortgage) is buying with the promise of future payment. How is this different from a contract where you pay upfront for physical delivery or you pay a lesser amount for future settlement in money? You can sell a partially paid for house , people do it everyday and they can buy a house with partial payment, which means like a future contract settled in cash.
Good illustration. To me, the stronger argument is that the COMEX will get paid, period. There is massive amounts of money pledged to make good on all trades, to ensure settlement. They have to do this since if anyone ever has a trade unsettled that is the end of the market. So, ALL TRADES are settled. It just happens the VAST MAJORITY of trades people do NOT want the physical metal, so either cash settle or close their position with buying the offset before settlement date.
YES, the basis can drift. This is the price between market and physical delivery. Its discussed ad nauseum in classes discussing CME boards. I have gone to three such classes and am sick of the word they harp on it so much so that participants are aware of the issue. MARKET PARTICIPANTS, (maybe not internet complainers), are extremely aware of basis risk, but have no other choice but to use the market to hedge.
Like I have said before, come up with a better market, one that is more useful to everyone, and you will be a billionaire.
Nope. At least not in my view, as someone who likes precious metals (I feel lonely here at times, but at least I am starting to get positive feedback from some of the precious metals bears for my contrarian views). I believe "zero hour," as described in the article, can occur, but it would need much more than a COMEX or LBMA default (however it is defined). The scenario I envision is a dollar, yen or euro collapse, driving precious metals prices far higher than they are today and creating a genuine shortage of precious metals due to surging demand, as investors seek alternatives to traditionally safe haven assets like the above-named currencies. At that point, dollar amounts might be meaningless.
But as I pointed out previously, I am more bullish on the dollar than before, which means I can see both prices and demand for precious metals falling in the next six to 12 months, or possibly longer. I expect the system to unravel, as it does consistently every five to 10 years, but not before some stock market bulls here have made some money. The Fed is more than capable of putting a band-aid to ease market fears in the near term.
I am not really into this but your logic seems off. in your example there is a physical house in existence. With these markets there is no physical reality to it. Further there is not enough product in existence to "pay the debt"
A builder can sell a house that is not yet built, can he not????
Of course you can...as long as you're willing to pay the penalty if you don't deliver...
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