In this article's Why the Gold and Silver Futures Market Is sort of a Rigged Casino...

A respectable quantity of Americans hold investments in gold and silver coins in one form or another. Some hold physical bullion, although some opt for indirect ownership via ETFs and other instruments. A very small minority speculate via 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, and also the coins in the investor's safe – every one of them – are valued, a minimum of in large part, depending on the most recent trade inside nearest delivery month with a futures exchange such as the COMEX. These “spot” prices are the ones scrolling across the bottom of your CNBC screen.
That makes the futures markets a small tail wagging a significantly larger dog.
Too bad. A more corruptible and lopsided mechanism for price discovery has not been devised. The price reported on TV has less regarding physical supply and demand fundamentals and more regarding lining the pockets from the bullion banks, including JPMorgan Chase.
Craig Hemke of TFMetalsReport.com explained inside a recent post the way the bullion banks fleece futures traders. He contrasted buying a futures contract with something more investors will be more familiar with – getting a stock. The amount of shares is fixed. When a trader buys shares in Coca-Cola company, they must be paired with another investor web-sites actual shares and would like to sell in the prevailing price. That's easy price discovery.
Not so inside a futures market like the COMEX. If an investor buys contracts for gold, they don't be combined with anyone delivering the actual gold. They are associated with someone who wants to sell contracts, no matter if he has any physical gold. These paper contracts are tethered to physical gold inside a bullion bank's vault with the thinnest of threads. Recently the policy ratio – the amount of ounces represented in writing contracts relative to the specific 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 a greater portion of late, it may 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 because 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 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, which is a problem.
But it gets worse. As said above, in the event you bet about the price of gold by either selling a futures contract, the bookie could be a bullion banker. He's now betting against you with an institutional advantage; he completely controls the supply of your contract.
It's remarkable a lot of traders are still willing to gamble despite all of the recent evidence that the fix is in. Open interest website in silver futures just hit a whole 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 an overabundance of honest price discovery in metals. It will happen when folks figure out the overall game and either abandon the rigged casino altogether or insist upon limited and reasonable coverage ratios. The new Shanghai Gold Exchange which deals within the physical metal itself may be a step in that direction. In the meantime, keep with physical bullion and understand “spot” prices for which they are.

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