Physical Gold and Silver Are Safe Havens, Futures Are Not / Commodities / Gold & Silver 2020
Last week’s market activity was another reminder that not allprecious metals investments are created equal.
Investors worried about a virus outbreak and watching the bloodbath on Wall Street rushed to buy coins, rounds,and bars.
As one of the largest and most respected U.S. dealers, MoneyMetals saw the biggest surge of buying activity in years. Clients bought thephysical metal as a safe haven, knowing it is scarce, intrinsically valuableand carries no counterparty risk.
Meanwhile, the opposite occurred on the COMEX because buyingcontracts there is anything but safe.
For starters, futures contracts for gold and silver areunlimited in supply. We don’t care what any COMEX official or sleepy CFTCregulator might say. No one who wants a contract is being turned awayregardless of how large the float of paper gold and silver gets relative to thenumber of actual bars in exchange vaults.
A futures contract is not an asset with intrinsic value. It isnothing more than a wager on the price of the metal on a particular futuredate. There is ultimately a winner and a loser for each wager. And retailinvestors gambling in futures are the losers a lot more often than not.
In contrast to an investment in physical metal, it’s highlypossible to lose everything when trading futures. In fact, lots of people justdid.
The few speculators lucky enough to have been short the marketlast week are winners. No doubt they are happy to have made the right call. Ifthey are smart, they will cash out and head for the door.
Not only are the odds stacked against them, it is possible towin and still wind up losing. Making the right call is one thing, collecting onthe wager is something else.
The holders of this paper either don’t know or don’t care thatthe contract provides no claim on any actual metal. Traders also aren’t worriedabout what happens should the counterparties involved in their contract fail.
And, yes, there is more than one counterparty. The companybehind the COMEX can collapse. So can the dodgy bullion banks selling hundredsof paper ounces for every ounce they have stored in exchange vaults.
Is that likely? Probably not as long as markets are functioning.We certainly wouldn’t rule out the possibility the next time a black swan eventcauses markets to seize or if the mother of all bubbles – the global debtbubble – finally bursts, and renders banks insolvent.
Futures are high risk, but that isn’t the worst thing aboutthese markets. Exchanges like the COMEX are essentially a rigged casino. That’sthe capper.
Speculators walk in and make bets using 10 to 1 leverage. Theyhave to worry about bad luck. They ought to worry even more about the badbankers taking the other side of their wager then handing them a set of loadeddice.
Bullion bankers have lied, swindled, and cheated to win inprecious metals futures. This is a fact, not a theory. We now know for certainthat multiple banks and many bankers spent the better part of adecade (at least) rigging prices against their own clients.
When, by hook or by crook, the losses pile up, many traders getmargin calls. They have to decide whether to send more money to stay in theirlosing bet or close out of the position.
There was plenty of forced selling in gold and silver futureslast Friday. The high risk, and naive, gamblers betting long there gotslaughtered.
Gambling in the metals futures markets has about as much incommon with an investment in physical gold and silver as a visit to thepari-mutuel window at a mafia run horse track has in common with buying a horsefarm.
Perhaps more people are figuring this out. We saw plenty of newclients jumping into physical bullion last week.
These people were looking for a genuine safe haven – outside andaway from Wall Street. And they were able to take full advantage of the lowerspot prices. They should consider it a gift from the less wise who are stillgambling, and losing, on the COMEX.
By Clint Siegner
Clint Siegner is a Director at MoneyMetals Exchange,perhaps the nation's fastest-growing dealer of low-premium precious metalscoins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon,puts his experience in business management along with his passion for personalliberty, limited government, and honest money into the development of MoneyMetals' brand and reach. This includes writing extensively on the bullionmarkets and their intersection with policy and world affairs.
© 2020 Clint Siegner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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