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<p>[QUOTE="yakpoo, post: 3696540, member: 18157"]Any gold that's traded, that's not physical gold, is what's called "paper gold"...it doesn't exist. Paper gold is a derivative; it's a side bet on gold...but used to obtain "price discovery". The same thing happens with silver or any other commodity.</p><p><br /></p><p>Whenever futures contracts can be settled in cash (vs. physical delivery), the actual amount of the physical commodity becomes less relevant. You're not trading gold...you're trading the "idea" of gold...relative to some currency.</p><p><br /></p><p>I believe that derivatives have the effect of increasing supply of a commodity. They meet the demand of speculators that don't actually care about the underlying commodity...but would buy it if derivatives were not available.</p><p><br /></p><p>In other words, I believe that both gold and silver would be considerably higher (in Dollar terms) if there were no derivatives. If true, I then wonder if careful management of derivatives markets might be a more effective/efficient tool for managing inflation than monetary policy alone...but I digress.</p><p><br /></p><p>Here's an interesting article that puts physical gold and speculative "paper gold" into perspective...</p><p><br /></p><p><a href="https://www.bullionstar.com/blogs/bullionstar/what-sets-the-gold-price-is-it-the-paper-market-or-physical-market/" target="_blank" class="externalLink ProxyLink" data-proxy-href="https://www.bullionstar.com/blogs/bullionstar/what-sets-the-gold-price-is-it-the-paper-market-or-physical-market/" rel="nofollow">https://www.bullionstar.com/blogs/bullionstar/what-sets-the-gold-price-is-it-the-paper-market-or-physical-market/</a>[/QUOTE]</p><p><br /></p>
[QUOTE="yakpoo, post: 3696540, member: 18157"]Any gold that's traded, that's not physical gold, is what's called "paper gold"...it doesn't exist. Paper gold is a derivative; it's a side bet on gold...but used to obtain "price discovery". The same thing happens with silver or any other commodity. Whenever futures contracts can be settled in cash (vs. physical delivery), the actual amount of the physical commodity becomes less relevant. You're not trading gold...you're trading the "idea" of gold...relative to some currency. I believe that derivatives have the effect of increasing supply of a commodity. They meet the demand of speculators that don't actually care about the underlying commodity...but would buy it if derivatives were not available. In other words, I believe that both gold and silver would be considerably higher (in Dollar terms) if there were no derivatives. If true, I then wonder if careful management of derivatives markets might be a more effective/efficient tool for managing inflation than monetary policy alone...but I digress. Here's an interesting article that puts physical gold and speculative "paper gold" into perspective... [URL]https://www.bullionstar.com/blogs/bullionstar/what-sets-the-gold-price-is-it-the-paper-market-or-physical-market/[/URL][/QUOTE]
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