@derryb said:
So, now it's clear. One of us thinks COMEX holds the price down and the other thinks COMEX holds the price up.
BTW, isn't holding the price up also manipulation?
That not what I think.. But what would happen if you removed a demand component? Of course you think price would go up....you've proven your understanding of economics many times on this board.
If COMEX ceased to exist, a demand component would vanish, but a corresponding supply component would also vanish.
The result would be a "thinner" market, but with the same basic supply and demand dynamics as before. The fundamental affect on prices would be neutral. However, thinner markets are much more volatile.
Thats not quite what would happen, but suppose it did. Thin markets mean wide spreads. Imagine silver with a $1 or $2 spread. Tack on a premium for prettiness, and the end consumer is 25% in the hole at purchase. This surely would make car dealers happy. Lol
The present system works quite well. And if silver was $50 or $100 and moving steadily higher at a 7-10% annual rate, then this discussion would even take place.
There will always be someone willing to step in and make money by making a market more efficient, given an opening.
If COMEX disappeared, in a free capitalist economy like ours, markets would initially be less efficient but then naturally recover.
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
COMEX and CME do not suppress physical trading. Quite the opposite.
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
COMEX and CME do not suppress physical trading. Quite the opposite.
Creating, trading, and closing contracts is not a "physical" market.
In lieu of physical trading, many entities use contracts for convenience.
If those entities were not able to use contracts, they would need to trade more physically.
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
COMEX and CME do not suppress physical trading. Quite the opposite.
Creating, trading, and closing contracts is not a "physical" market.
In lieu of physical trading, many entities use contracts for convenience.
If those entities were not able to use contracts, they would need to trade more physically.
And how does that support your assertion that the futures market supresses price?
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
COMEX and CME do not suppress physical trading. Quite the opposite.
Creating, trading, and closing contracts is not a "physical" market.
In lieu of physical trading, many entities use contracts for convenience.
If those entities were not able to use contracts, they would need to trade more physically.
And how does that support your assertion that the futures market supresses price?
Where did I state that COMEX suppresses PRICES ?
I stated that COMEX suppresses physical trading.
That is not the same thing.
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
COMEX and CME do not suppress physical trading. Quite the opposite.
Creating, trading, and closing contracts is not a "physical" market.
In lieu of physical trading, many entities use contracts for convenience.
If those entities were not able to use contracts, they would need to trade more physically.
And how does that support your assertion that the futures market supresses price?
Where did I state that COMEX suppresses PRICES ?
I stated that COMEX suppresses physical trading.
That is not the same thing.
So what is the effect on physical prices due to this "supressed" trading?
Spreads for physical widen because ya have to ship it around, and plus if it's cool or pretty or rare, sellers want more, and if it's common or ugly or weird alloy, buyers pay less.
Naturally.
Paper and electronic silver trades instantly for very near current spot.
Paper and electronic silver trades instantly for very near current spot.
And what determines current spot?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
COMEX and CME do not suppress physical trading. Quite the opposite.
Creating, trading, and closing contracts is not a "physical" market.
In lieu of physical trading, many entities use contracts for convenience.
If those entities were not able to use contracts, they would need to trade more physically.
And how does that support your assertion that the futures market supresses price?
Where did I state that COMEX suppresses PRICES ?
I stated that COMEX suppresses physical trading.
That is not the same thing.
So what is the effect on physical prices due to this "supressed" trading?
.
I already stated that it was neutral. And you even commented on my comment about the neutrality:
.
@dcarr said:
If COMEX ceased to exist, a demand component would vanish, but a corresponding supply component would also vanish.
The result would be a "thinner" market, but with the same basic supply and demand dynamics as before. The fundamental affect on prices would be neutral. However, thinner markets are much more volatile.
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
COMEX and CME do not suppress physical trading. Quite the opposite.
Creating, trading, and closing contracts is not a "physical" market.
In lieu of physical trading, many entities use contracts for convenience.
If those entities were not able to use contracts, they would need to trade more physically.
And how does that support your assertion that the futures market supresses price?
Where did I state that COMEX suppresses PRICES ?
I stated that COMEX suppresses physical trading.
That is not the same thing.
So what is the effect on physical prices due to this "supressed" trading?
.
I already stated that it was neutral. And you even commented on my comment about the neutrality:
.
@dcarr said:
If COMEX ceased to exist, a demand component would vanish, but a corresponding supply component would also vanish.
The result would be a "thinner" market, but with the same basic supply and demand dynamics as before. The fundamental affect on prices would be neutral. However, thinner markets are much more volatile.
So you disagree with derryb who has stated many times that the futures market supressed prices.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
dcarr said:
Note, however, that physical markets are inherently less volatile than "paper" contract markets.
cohodk said: I vehemently disagree. Even more than I've ever disagreed with derryb.
Please cite examples to substantiate your claim.
cohodk, why don't YOU cite examples to substantiate your own claim? there have been an ample number of examples over the years, showing violent price suppression in the metals market on low volumes during thin trading hours that have the effect of slamming the price for a few days.
As dcarr notes, the market supply & demand dynamics remain the same, but the volatility and manipulation serve to injure market participants who don't have the advantage of knowing when the slams will occur, and the more investors who are driven from these markets, the easier they are to manipulate, for profit.
As derryb notes, the price is suppressed, long enough to accomplish the goal of maintaining control and profitability.
There is nothing inconsistent between what dcarr and derryb are saying.
Q: Are You Printing Money? Bernanke: Not Literally
"Volatility" is the rate of change and amplitude of price fluctuations.
In a market with only physical trading, there is an inertia to transactions - physical metal has to be moved. This inertia dampens volatility.
In a futures (paper contract) market, everyone is watching the same screens. A lot of people can (and will) jump in and out of the market on a moment's notice by doing nothing more than pressing a few keys on a keyboard.
But an even bigger effect comes from the ability to sell short. In a physical market, you can't sell short because nobody buys unless you have the metal to deliver. With futures, you can sell short now, and buy back later.
Price swings are amplified when it is easy to buy and sell contracts at the touch of a key.
In the long run, supply and demand fundamentals will always rule the price.
But in the short term, paper trading can be used to push prices up or down (usually down so as to initiate a wave of selling that benefits the entities that are manipulating).
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
@dcarr said:
"Volatility" is the rate of change and amplitude of price fluctuations.
In a market with only physical trading, there is an inertia to transactions - physical metal has to be moved. This inertia dampens volatility.
In a futures (paper contract) market, everyone is watching the same screens. A lot of people can (and will) jump in and out of the market on a moment's notice by doing nothing more than pressing a few keys on a keyboard.
But an even bigger effect comes from the ability to sell short. In a physical market, you can't sell short because nobody buys unless you have the metal to deliver. With futures, you can sell short now, and buy back later.
Price swings are amplified when it is easy to buy and sell contracts at the touch of a key.
In the long run, supply and demand fundamentals will always rule the price.
But in the short term, paper trading can be used to push prices up or down (usually down so as to initiate a wave of selling that benefits the entities that are manipulating).
There is so much you do not know.
You are trying to prove that physical trading would be less volatile because--as you perceive--paper trading can be volatile. That in no way proves physical trading would be less volatile. It's so good you don't perform clinical trials.
Heres a few things you might want to consider in physical trading.
Currencies
Governments
Geographies
Political instability
Transportation
Labor
Security
Monetary policies
Fiscal policies
Energy sources
Distribution
And many more.
If you remove a common trading venue in a common currency, then you expose physical trading to all the above.
Serious question: what happens to debt against tangible assets when a unit of currency devalues by 5 or 6 or 7 zeroes from the decimal point?
Say a Venezuelan has a mortgage for a million, what are they, bolivars? And a car loan for 20 thousand. And he happens to own a few dollars and ounces of gold too.
Then hyperinflation hits, and his gold and dollars are now worth 1.1 million bolivars... Does he get to sell them and pay off his debt and own the assets free and clear?
I lived in Argentina from 87-89. We would see about 30% inflation a year, and then the last three or four months I was there it was 30-40% per month.
Well to do people had access to dollars (nowadays probably Euros too). ALL purchases that required scheduled payments or installment payments had an inflation adjuster built into the schedule. So, there was no cheating using inflation to inflate away what was owed.
Countries that have had persistent inflation already have built in mechanisms to account for the declining currency.
Here is an example which illustrates how a large entity with deep pockets can benefit by moving futures markets, and causing wider price swings in the process.
A fairly large gold mining company had a certain amount of yearly gold production. They began selling forward production into the market (selling short on futures exchanges). For a time, this had the same affect as a large increase of supply entering the market. Naturally, gold prices fell. The company was able to prolong their short position for quite a while. Eventually, some smaller gold producers started running into difficulty due to the relatively low gold price. Now here is the key part: The large gold mining company was able to buy up numerous other gold producers on the cheap.
Of course, this sort of manipulation could only go on for so long. Eventually, the company had to start closing out their hedge book. The companies that they had acquired continued to deliver metal into the market. But now, that metal went towards reducing the hedge book.
So the net result was an artificially suppressed gold price for a few years, followed by and artificially high gold price for a few years after that.
None of this would have been possible without short selling and the venue to do that.
Again, you write of paper trading, not physical trading. I'm still waiting for you to explain how physical trading would lead to more stable pricing as you contend.
Perhaps you should think about your mining company example a bit more.....I believe you are smart enough to realize how volatile prices would be if not for the futures market.
Ah, that same futures market that wasn't manipulated in order to squash the Hunt Brothers & Saudis - who were taking delivery of physical metal and adding futures contracts to their position on margin in order to squeeze the market and force the price higher. That market. The one where selling was banned and margin requirements were raised in order to force the Hunts margin calls and to drop the price of silver. Yeah, that futures market. The one that's never manipulated in either direction. Right!
Q: Are You Printing Money? Bernanke: Not Literally
Comments
There will always be someone willing to step in and make money by making a market more efficient, given an opening.
If COMEX disappeared, in a free capitalist economy like ours, markets would initially be less efficient but then naturally recover.
Physical precious metals markets are inefficient (relatively high premiums) because there really isn't that much physical trading going on. If there was a lot more physical precious metals trading happening, that market would be more efficient and the premiums would be lower (economies of scale and so on).
But the effect of COMEX and the like is to suppress physical trading (and I think that is actually an intended consequence).
COMEX and CME do not suppress physical trading. Quite the opposite.
Knowledge is the enemy of fear
Creating, trading, and closing contracts is not a "physical" market.
In lieu of physical trading, many entities use contracts for convenience.
If those entities were not able to use contracts, they would need to trade more physically.
And how does that support your assertion that the futures market supresses price?
Knowledge is the enemy of fear
Where did I state that COMEX suppresses PRICES ?
I stated that COMEX suppresses physical trading.
That is not the same thing.
So what is the effect on physical prices due to this "supressed" trading?
Knowledge is the enemy of fear
Spreads for physical widen because ya have to ship it around, and plus if it's cool or pretty or rare, sellers want more, and if it's common or ugly or weird alloy, buyers pay less.
Naturally.
Paper and electronic silver trades instantly for very near current spot.
Liberty: Parent of Science & Industry
And what determines current spot?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Daily aggregate buy and sell decisions by numerous investors, speculators, producers, and consumers.
Liberty: Parent of Science & Industry
.
I already stated that it was neutral. And you even commented on my comment about the neutrality:
.
Note, however, that physical markets are inherently less volatile than "paper" contract markets.
I vehemently disagree. Even more than I've ever disagreed with derryb.
Please cite examples to substantiate your claim.
Knowledge is the enemy of fear
Them.
Boo!!!
Hahahahaha
Knowledge is the enemy of fear
So you disagree with derryb who has stated many times that the futures market supressed prices.
Knowledge is the enemy of fear
I agree with everyone.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
dcarr said:
Note, however, that physical markets are inherently less volatile than "paper" contract markets.
cohodk said: I vehemently disagree. Even more than I've ever disagreed with derryb.
Please cite examples to substantiate your claim.
cohodk, why don't YOU cite examples to substantiate your own claim? there have been an ample number of examples over the years, showing violent price suppression in the metals market on low volumes during thin trading hours that have the effect of slamming the price for a few days.
As dcarr notes, the market supply & demand dynamics remain the same, but the volatility and manipulation serve to injure market participants who don't have the advantage of knowing when the slams will occur, and the more investors who are driven from these markets, the easier they are to manipulate, for profit.
As derryb notes, the price is suppressed, long enough to accomplish the goal of maintaining control and profitability.
There is nothing inconsistent between what dcarr and derryb are saying.
I knew it would happen.
Dcarr made the claim. Burden of proof is on him.
You guys are good at stating conjecture as fact and claiming a molehill is a mountain. Bravo.
You really have ZERO idea of how this works. Zero.
Fascinating is your continued participation in what you believe is so manipulated. Only a fool would play a rigged game.
Knowledge is the enemy of fear
"Volatility" is the rate of change and amplitude of price fluctuations.
In a market with only physical trading, there is an inertia to transactions - physical metal has to be moved. This inertia dampens volatility.
In a futures (paper contract) market, everyone is watching the same screens. A lot of people can (and will) jump in and out of the market on a moment's notice by doing nothing more than pressing a few keys on a keyboard.
But an even bigger effect comes from the ability to sell short. In a physical market, you can't sell short because nobody buys unless you have the metal to deliver. With futures, you can sell short now, and buy back later.
Price swings are amplified when it is easy to buy and sell contracts at the touch of a key.
In the long run, supply and demand fundamentals will always rule the price.
But in the short term, paper trading can be used to push prices up or down (usually down so as to initiate a wave of selling that benefits the entities that are manipulating).
Makes too much sense for some to understand.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
There is so much you do not know.
You are trying to prove that physical trading would be less volatile because--as you perceive--paper trading can be volatile. That in no way proves physical trading would be less volatile. It's so good you don't perform clinical trials.
Heres a few things you might want to consider in physical trading.
Currencies
Governments
Geographies
Political instability
Transportation
Labor
Security
Monetary policies
Fiscal policies
Energy sources
Distribution
And many more.
If you remove a common trading venue in a common currency, then you expose physical trading to all the above.
Good luck with your "stability".
You guys really have no idea how this works.
Knowledge is the enemy of fear
Or too easy to understand when you know no different.
Knowledge is the enemy of fear
I lived in Argentina from 87-89. We would see about 30% inflation a year, and then the last three or four months I was there it was 30-40% per month.
Well to do people had access to dollars (nowadays probably Euros too). ALL purchases that required scheduled payments or installment payments had an inflation adjuster built into the schedule. So, there was no cheating using inflation to inflate away what was owed.
Countries that have had persistent inflation already have built in mechanisms to account for the declining currency.
Here is an example which illustrates how a large entity with deep pockets can benefit by moving futures markets, and causing wider price swings in the process.
A fairly large gold mining company had a certain amount of yearly gold production. They began selling forward production into the market (selling short on futures exchanges). For a time, this had the same affect as a large increase of supply entering the market. Naturally, gold prices fell. The company was able to prolong their short position for quite a while. Eventually, some smaller gold producers started running into difficulty due to the relatively low gold price. Now here is the key part: The large gold mining company was able to buy up numerous other gold producers on the cheap.
Of course, this sort of manipulation could only go on for so long. Eventually, the company had to start closing out their hedge book. The companies that they had acquired continued to deliver metal into the market. But now, that metal went towards reducing the hedge book.
So the net result was an artificially suppressed gold price for a few years, followed by and artificially high gold price for a few years after that.
None of this would have been possible without short selling and the venue to do that.
Again, you write of paper trading, not physical trading. I'm still waiting for you to explain how physical trading would lead to more stable pricing as you contend.
Perhaps you should think about your mining company example a bit more.....I believe you are smart enough to realize how volatile prices would be if not for the futures market.
Knowledge is the enemy of fear
Ah, that same futures market that wasn't manipulated in order to squash the Hunt Brothers & Saudis - who were taking delivery of physical metal and adding futures contracts to their position on margin in order to squeeze the market and force the price higher. That market. The one where selling was banned and margin requirements were raised in order to force the Hunts margin calls and to drop the price of silver. Yeah, that futures market. The one that's never manipulated in either direction. Right!
I knew it would happen.
https://www.reuters.com/article/us-venezuela-politics-gold/citigroup-to-sell-venezuelan-gold-in-setback-to-president-maduro-sources-idUSKCN1R12GR
lots of reading in here.
Outstanding loan against the gold is $1.1 billion and then there is another $200 billion in bond debt.
Bleak. Very bleak.