The PAPER gold and silver market has a VIRTUAL supply. An unlimited supply of PAPER silver and PAPER gold can be sold short to depress prices. The leverage in PAPER markets distorts supply and demand. Naked shorting and fractional-reserve-metals-trading hide the fact that PHYSICAL gold and silver are in short supply.
Current gold and silver “spot prices” in the marketplace of virtual gold and silver do not reflect the actual shortages of “good delivery” bars of silver and gold on the New York and London exchanges.
When people invest in PAPER gold or silver, most assume their certificates are backed by PHYSICAL gold or silver – ounce for ounce. They are not, not at all. Gold and silver markets have become securitized. Whether it is commodities futures contracts at the COMEX or shares of Exchange Traded Funds, one ounce of gold or silver is sold over and over — 100s of times.
Exchange Traded Funds such as GLD and SLV are highly leveraged derivatives. If markets are orderly, ETFs are liquid. But that will not always be the case. GLD and SLV expose investors to counter-party risk and the risks associated with bonds. (It is in the contracts’ fine-print; and bonds can go “no bid.”)
There is no counter-party risk if you take delivery of silver and gold coins. When supplies of PHYSICAL gold and silver are extremely tight, premiums on actual coins and bars rise. Rising coin premiums are a red flag.
A few years ago, premiums began rising on U.S. 90% silver coins, U.S. $20 Gold Pieces, fractional sizes of gold bullion coins, and one ounce American Silver Eagles. In the days ahead, gold and silver shortages will become increasingly obvious as premiums continue to rise on coins.
Trade in your PAPER gold and silver for PHYSICAL coins. Real money means real liquidity.
by Denise Rhyne