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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 08/12/2008 : 18:49:27
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Why Paper Silver is not as good as Physical Silver
(Paper silver is all forms of silver held by another, such as ETF's, 3rd party Vaults, futures contracts, options, certificates, brokers, or even bullion dealers orders in transit)
Silver Stock Report
by Jason Hommel, August 12th, 2008
Yesterday, silver hit a low, and was down dramatically to as low as $14.08/oz. I'm sure the dip caused a lot of margin calls on people who owned silver futures contracts, who had to sell out. Perhaps this is a time to review a few more reasons why all forms of paper silver are not as good as owning physical silver.
1. Default risk. Silver is good because it cannot default. All issuers of all forms of paper silver can default and fail to redeem their paper for silver, and are therefore not silver. Those who default might be bailed out, but only in more paper, which is inflationary, which is why you want silver, not paper. There is a lender of last resort for paper, but not for silver. When Handy and Harmon, a silver refiner, defaulted due to their bankruptcy, people were paid nothing. Furthermore, payment in paper money that is quickly devaluing due to hyperinflation is no protection, and not the kind of protection that you get with real silver.
2. Bankruptcy risk. This is different from default risk. The company who sells paper silver could go bankrupt. That's different than if they default on any silver accounts or contracts directly.
3. Broker risk. This is another, different risk. When you buy paper silver futures contracts, you usually do it through a broker. That broker can end up stealing money out of customer accounts, even if the broker does not go bankrupt. Brokers are not covered by FDIC insurance. There is SIPC. They only reason they have to try to reassure you that your money is safe is because it isn't!
4. Exchange risk. If you own futures contracts, you usually do so through an exchange, unless you own an "over the counter" derivative. Even if your broker is ok, and if the person on the other side of the trade is ok, maybe the exchange will "change the rules". This is different from default risk, bankruptcy risk, or brokerage risk. The futures market exchange changed the rules, and "defaulted or defrauded" silver investors in 1980.
5. Confiscation risk. Paper contracts could be confiscated by government, since they are traded via "known" agents and exchanges, the standard brokers. Real silver is portable, and can be moved outside of the jurisdiction of any hostile governments, or held until after the failure and collapse of any hostile governments. Silver owned by individuals is orders of magnitude safer. It's not worth their time to confiscate silver of 10,000 people, who live among 10 million people in 10 million homes. It's also far too dangerous, and political suicide. It's much easier to confiscate silver that 10,000 people have pooled together in one place! It is nearly impossible to confiscate silver that is locked up in a hidden place and cannot be found.
6. Buying paper silver diverts demand away from physical. Thus, paper silver is not real.
7. Paper is a promise. Silver is payment. Fundamentally, paper is not silver, and cannot be silver. Paper is only money due to "fiat" law, and during times of chaos, such bad laws are ignored.
8. Silver is limited. Paper promises can be created endlessly and have no limit.
9. The entire reason for buying silver is to avoid the failing paper promises of an entire industry. To trust another paper promise is just silly.
10. Fraud is admitted as "standard business practice" among brokers who hold paper silver (not futures contracts) for clients. This is not hearsay, this was admitted in a legal proceeding.
11. Storage fees are charged for silver that does not exist, as "standard business practice" in the broker industry. This is not hearsay, this was admitted in a legal proceeding.
12. Buying paper silver creates a lower price for silver. The silver price does not move up when you buy paper. This is self evident.
13. Buying paper silver puts "cash" into the hands of the manipulators, and enriches the "enemies" of truth and true value.
14. Leverage risk. With futures contracts, you can get margin calls. This creates an increased chance of loss that does not exist if you pay for your own silver in full, 100% owned, with no leverage.
15. Margin increases. This is different from a margin call. As silver prices move up, more margin is required to maintain an approximately 15% down payment rate on futures contracts.
16. Time risk. One form of paper silver, (options on silver futures contracts) expires. If the price of silver does not move up enough in a short time, the options expire worthless. Real physical silver will last over 2000 years, from Roman times, with just a slight tarnish that will actually protect the silver from further tarnish. Silver does not expire.
17. Gambling risk. With futures, you are gambling, and your gain comes at another's loss, not through creating anything that helps people, such as a stockpile of a needed rare commodity, or increased production of a rare commodity. Risk is not the definition of gambling, gambling is when two people make a bet with each other, and one is a winner and the other is a loser, in a zero sum game. Life is risky, and life is not a zero sum game. Risk is minimized with 100% owned physical silver.
18. Moral risk. Your gain necessarily enslaves another to perform what might not be able to be performed. Enslaving others is morally wrong. Some people say morality should have nothing to do with investing, but I think that if you cannot apply your morality to your life, then your morals are useless. Owning physical silver is taking responsibility of your own wealth, and taking dominion over what God has provided for mankind.
19. Tax risk. Real silver is owned anonymously. Trading accounts are not anonymous; they have your number. Real silver can be sold anonymously for cash. Paper silver is tracked, and thus, capital gains taxes or any sort of new, confiscatory "windfall taxes" may apply.
20. Market risk. Paper markets and exchanges seize up from time to time, especially during wartime or other crisis times. Physical silver coins or one ounce rounds can instantly be physically traded to another person without delay or contact or permission from any intermediary. Thus, physical silver is the ultimate form of liquid wealth, and the ultimate form and expression of just power. Physical silver can even be transported over borders, if need be.
21. Real money does not grow on trees, nor is it printed on paper! Money is not only, and not merely, a "medium of exchange". Money is, and must also be, a store of wealth, a unit of account, and a means of final payment (not a promise to be paid!)
Sincerely,
Jason Hommel
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 08/12/2008 : 20:57:03
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22 Vault fraud. I may have mentioned this previously but it is worth repeating.
When it was legal to own gold again a friend of my father went to some outfit that sold gold and promised to safeguard the gold in their vaults. My father's friend declined to leave the gold coin with them even though they tried every arguement they could think of to have him leave the gold coin with them. A year later those who ran the company slipped away into the night. It seems the same gold coins they were selling were sold and resold to different people and the vault was only for show. The con men made off with the gold and the money they made off of the unsuspecting buyers.
(Gold coin in hand is worth ten in someone else's vault. Ditto for silver.) |
Edited by - pencilvanian on 08/12/2008 20:59:03 |
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TenBears
1000+ Penny Miser Member
USA
1021 Posts |
Posted - 08/12/2008 : 21:41:16
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quote:
Originally posted by pencilvanian
Add to the list
22 Vault fraud. I may have mentioned this previously but it is worth repeating.
When it was legal to own gold again a friend of my father went to some outfit that sold gold and promised to safeguard the gold in their vaults. My father's friend declined to leave the gold coin with them even though they tried every arguement they could think of to have him leave the gold coin with them. A year later those who ran the company slipped away into the night. It seems the same gold coins they were selling were sold and resold to different people and the vault was only for show. The con men made off with the gold and the money they made off of the unsuspecting buyers.
(Gold coin in hand is worth ten in someone else's vault. Ditto for silver.)
Didn't someone have a post on a similar silver scam? You could buy silver and the company that sold you the silver was happy to store it for you, charging a storage fee of course. Next thing you know, hundreds of people own the same bag of silver and all are paying a nice little storage fee. What a scam. |
"Rich," the Old Man said dreamily, "is not baying after what you can't have. Rich is having the time to do what you want to do. Rich is a little whiskey to drink and some food to eat and a roof over your head and a fish pole and a boat and a gun and a dollar for a box of shells. Rich is not owing any money to anybody, and not spending what you haven't got." Robert Ruark
there are too wild Indians...
there are too wild Indians...
there are too wild Indians...-----still taunted
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 08/13/2008 : 14:28:07
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quote:
Originally posted by TenBears
quote:
Originally posted by pencilvanian
Add to the list
22 Vault fraud. I may have mentioned this previously but it is worth repeating.
When it was legal to own gold again a friend of my father went to some outfit that sold gold and promised to safeguard the gold in their vaults. My father's friend declined to leave the gold coin with them even though they tried every arguement they could think of to have him leave the gold coin with them. A year later those who ran the company slipped away into the night. It seems the same gold coins they were selling were sold and resold to different people and the vault was only for show. The con men made off with the gold and the money they made off of the unsuspecting buyers.
(Gold coin in hand is worth ten in someone else's vault. Ditto for silver.)
Didn't someone have a post on a similar silver scam? You could buy silver and the company that sold you the silver was happy to store it for you, charging a storage fee of course. Next thing you know, hundreds of people own the same bag of silver and all are paying a nice little storage fee. What a scam.
I thought that was your scam. We almost traded my million copper pennies for all your imaginary silver. |
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” – George Bernard Shaw.
Why Copper Bullion ~~~ Interview with Silver Bullion Producer Market Harmony
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Copper Catcher
Administrator
USA
2092 Posts |
Posted - 08/13/2008 : 14:48:53
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| Ardent Listener, I have a question for you and the board. It is my understanding that with all the "contracts" for silver as well as the silver ETFs that there is not enough actual physical silver to cover everything pledged. However, I also read somewhere that there is clause in every contract that basically says that instead of producing the actual commodity the party has the option to just pay money for it. So my question is this really a shell game and what will cause everyone to legally make it all good. Maybe they don't and can just keep putting it off and the numbers just keep getting bigger. Again, I need someone to shed some light on this issue so I can learn. |
Edited by - Copper Catcher on 08/14/2008 09:21:20 |
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 08/13/2008 : 20:40:02
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quote:
Originally posted by Copper Catcher
Ardent Listener, I have a question for you and the board. It is my understanding that with all the "contracts" for silver as well as the silver ETFs that there is not enough actual physical silver to cover everything pledged. However, I also read somewhere that there is clause in every contract that basically says that instead of producing the actual commodity they party has the option to just pay money for it. So my question is this really a shell game and what will cause everyone to legally make it all good. Maybe they don't and can just keep putting it off and the numbers just keep getting bigger. Again, I need someone to shed some light on this issue so I can learn.
That is the million dollar question.......... Is there really a physical shortage of silver out there or not? Is so, why isn't the price of silver going through the roof? Ever since the United States goverment sold off their huge reserve of silver I have seen stories about how there was a shortage of it. That goes back many, many years.
I don't consider a temporary shortage of silver at local dealers or high physical prices on ebay as proof that there is a shortage of world-wide silver. All kinds of factors come into play as to why your local dealer may not have as much physical silver on hand as you may expect him to have or why people are paying too much for it on ebay. But on the other hand, there is a lot to be said for the argument that silver is found close to the surface and the deeper they mine the less of the stuff they are likely to find. In addition, silver is found as a by-product of mining copper. Higher copper prices of recent years should have encouraged more copper mining and thus more production of silver as a by-product. The next logical question is how much copper is left in the ground?
If it was disclosed tomorrow that there was a serious shortage of silver the prices of course would shoot up of course. But as long as it is told there is a lot of paper silver backed by physical silver on hand and most people believe it then the price can be kept at a much lower level. That would take an international conspiricy IMO. Why do the silver produces sell their silver so low if it is so hard or rare to find? Other than selling something brokers don't have, why wouldn't the goverment just tell the truth that there is a shortage of silver so it can be conserved better and thus stretch out what supply that is left? It's not like we can't take pictures without silver now........(for example). Are we (small time investors) being told that there is a shortage so we buy in hopes it is true and thus help hold the price of silver up? These are questions and many others that I feel are worthy of a thread and futher discussion. |
Realcent.forumco.com disclosure. Please read.
All posts either by the members, moderators, and the administration of http://realcent.forumco.com are for your edification and amusement only. It is not the intent of realcent.forumco.com or its host to provide investment, medical, matrimonial, legal, security or tax advice and nothing posted here should be considered to be so. All rights reserved.
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fb101
Administrator
USA
2856 Posts |
Posted - 08/13/2008 : 21:02:33
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Something I never hear mentioned is the fact that most uses of silver provide a >50% recovery rate.
I can't cite this as fact, it was what I always heard, and the price of silver has always reflected that in the disparity between gold/silver mined and gold/silver price. If anyone knows and can refute that, OK with me. My understanding is there is a 16:1 ratio of silver:gold in the ground.
So without that, silver should be gold/16 or $50 oz. |
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 08/13/2008 : 21:07:37
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| The silver institute may be a good place for silver facts. You must be logged in to see this link. Of course that is provided they are not part of a conspiricy. |
Realcent.forumco.com disclosure. Please read.
All posts either by the members, moderators, and the administration of http://realcent.forumco.com are for your edification and amusement only. It is not the intent of realcent.forumco.com or its host to provide investment, medical, matrimonial, legal, security or tax advice and nothing posted here should be considered to be so. All rights reserved.
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 08/13/2008 : 21:09:40
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Demand and Supply in 2007
Demand
Total global silver fabrication grew 1 percent in 2007 to 843.7 Moz. Most notably, industrial applications, a key constituent of the overall demand complex, posted an impressive 7 percent gain to 455.3 Moz, recording the sixth consecutive year of growth in this category. In fact, in the period since the technology related slump in 2001, industrial applications have added an impressive 120.1 Moz to silver demand. A key factor behind the increase last year was the more than 6 percent rise in the electrical and electronics sector, which broke the 200 Moz mark for the first time. India, China and the United States accounted for 70 percent of the world rise in all industrial uses, while Germany, Italy and France also posted gains. Total industrial demand reached 54 percent of total global silver fabrication demand in 2007.
Jewelry fabrication coped well with high and volatile silver prices, slipping by only 2 percent in 2007, the product of weaker offtake in Europe and the Indian Sub-Continent, which offset growth in East Asia, where Chinese jewelry fabrication grew by a noteworthy 13 percent in 2007. Silverware demand fell by a modest 4 percent in 2007 to 58.8 Moz, as losses in India, Europe and Mexico were partially countered by gains for Russia and China.
Photographic demand continued to decrease, falling by 11 percent in 2007 to 128.3 Moz. The bulk of the decline was accounted for by lower consumer demand for color film, this sector being most affected by further inroads from digital photography.
World Silver Demand
Supply
Global silver mine production rose by 4 percent in 2007, with particularly solid gains from Chile, China and Mexico. Total silver mine production reached 670.6 Moz last year. Peru was the world#65533;s biggest silver mining country in 2007, followed in the rankings by Mexico, China, Chile and Australia. Last year, silver generated at primary mines drove global totals higher, increasing by 11 percent to account for 30 percent of all silver mined. Cash costs at primary silver mines rose to a weighted average of US$1.52 per ounce, driven by a combination of labor, consumables and energy cost rises.
Top 20 Silver Producing Countries in 2007
(millions of ounces)
1. Peru 112.3
2. Mexico 99.2
3. China 82.4
4. Chile 62.0
5. Australia 60.4
6. Poland 39.5
7. Russia 38.0
8. United States 37.3
9. Canada 25.8
10. Kazakhstan 22.7
11. Bolivia 16.9
12. Sweden 9.4
13. Argentina 8.5
14. Indonesia 8.2
15. Turkey 7.5
16. Morocco 7.1
17. Iran 3.1
18. India 2.9
19. Guatemala 2.8
20. Uzbekistan 2.8
The net supply of silver from above-ground stocks dropped by 8 percent in 2007 to 173.1 Moz. The decline was mainly the product of lower net government sales and rising producer de-hedging, although scrap supply was also trimmed. De-hedging reduced the overall producer hedge position by a sizable 30 percent last year, the global book declining by 25.0 Moz. Despite higher silver prices, scrap volumes fell in 2007 by 3 percent, to 181.6 Moz, the result of falling Indian recycling with the rest of the world virtually flat on a net basis. Net government sales took a steep downturn in 2007, plummeting by 46 percent to 42.3 Moz. The decline was the result of two major sellers in 2006, namely China and India, being essentially absent in 2007. In contrast, Russian government sales, which comprised the bulk of net sales in 2006, rose, partly offsetting the others#65533; declines.
Supply from Above-Ground Stocks
(Million ounces) 2006 2007
Bullion
Implied Net Disinvestment -70.8 -25.8
Producer Hedging -6.8 -25.0
Net Government Sales 78.2 42.3
Sub-total Bullion 0.6 -8.6
Old Silver Scrap 188.0 181.6
Total 188.6 173.1
World Silver Supply and Demand
To document these and other market fundamentals, each year the Silver Institute works with GFMS Limited, of London, a leading research company, to prepare and publish an annual report of worldwide silver supply and demand trends, with special emphasis on key markets and regions. This annual survey also includes current information on prices and leasing rates, mine production, investment and fabrication.
To learn more about the general production and uses of silver, please see our Production and Uses pages. For articles related to supply and demand, see the Silver News archives' subject index.
World Silver Supply and Demand
(in millions of ounces)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Supply
Mine Production 542.2 556.9 591.0 606.2 593.6 600.6 621.1 643.8 647.4 670.6
Net Government Sales 33.5 97.2 60.3 63.0 60.3 88.4 60.2 67.5 78.2 42.3
Old Silver Scrap 193.9 181.6 180.7 182.7 187.5 184.0 183.7 186.0 188.0 181.6
Producer Hedging 6.5 -- -- 18.9 -- -- 9.6 27.6 -- --
Implied Net Disinvestment 48.2 44.8 87.2 -- 10.8 -- -- -- -- --
Total Supply 824.3 880.4 919.1 870.4 852.2 872.9 874.6 925.0 913.7 894.5
Demand
Fabrication
Industrial Applications 316.3 339.0 374.3 335.2 339.2 349.8 367.3 405.3 424.8 455.3
Photography 225.4 227.9 218.3 213.1 204.3 192.9 178.8 160.3 144.0 128.3
Jewelry 140.6 159.8 170.6 174.3 168.9 179.2 174.9 173.8 166.3 163.4
Silverware 114.2 108.6 96.4 106.1 83.5 83.9 67.3 67.8 61.2 58.8
Coins & Medals 27.8 29.1 32.1 30.5 31.6 35.7 42.4 40.0 39.8 37.8
Total Fabrication 824.3 864.4 891.7 859.2 827.4 841.5 830.7 847.4 836.0 843.7
Producer De-Hedging -- 16.0 27.4 -- 24.8 20.9 -- -- 6.8 25.0
Implied Net Investment -- -- -- 11.2 -- 10.5 44.0 77.6 70.8 25.8
Total Demand 824.3 880.4 919.1 870.4 852.2 872.9 874.6 925.0 913.7 894.5
Silver Price
(London US$/oz)
5.544 5.220 4.951 4.370 4.599 4.879 6.658 7.312 11.549 13.384
SOURCE: World Silver Survey 2008
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All posts either by the members, moderators, and the administration of http://realcent.forumco.com are for your edification and amusement only. It is not the intent of realcent.forumco.com or its host to provide investment, medical, matrimonial, legal, security or tax advice and nothing posted here should be considered to be so. All rights reserved.
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 08/13/2008 : 22:20:23
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What is wrong with Paper Silver?
All kinds of paper trades tied to spot silver price. Some lump all the paper together and disparagingly call it “paper silver”, but this is not a fair general categorization. Some paper is backed by silver in a vault, some is only thought to be backed by physical silver, and some paper, like futures contracts and options, are clearly NOT backed by silver anywhere.
Futures Contracts and their sisters called Options are really just bets. They are monetary creations that represent a bet, and nothing more. Just as setting up a bet on a football game or election outcome does not directly create any additional football games or elections, betting on price movements of commodities does not change the fundamental or real demand for a commodity. No one expects or could ensure that any or all these futures contracts will ever settle with physical silver, any more then anyone expects a hundred thousand pork bellies to be delivered to their office to settle a futures contract.
But assume for a second that everyone could demand that these contracts be settled in physical silver one week. There is a finite amount of silver in the world, just like there is a finite amount of grain or hogs or oil at any moment. The covered sellers could open the vault and deliver the goods, or call in silver that is owed to them. The uncovered sellers of the contracts would have to wade into the market and buy the physical silver, perhaps creating some short term volatility. The buyers would then take delivery and would have to come up with the cash to pay for the silver (not just their gain or loss on the contract). No silver is created or lost in the process.
Now the next week all the buyers again require physical delivery. The covered sellers are fine, the uncovered sellers have to pony up cash (from the buyers plus the shortfall) at the current price to buy silver. Pretty quick no one is going to be writing uncovered contracts to sell silver unless they really believe the price will really fall because of the hassle factor. All the buyers that took physical delivery are going to be looking at their bars and wondering when to sell all that silver and how to get back all the cash they just sunk into physical silver. So really options and futures create no extra demand for silver, nor reduce the demand. They do admittedly contribute to market volatility, and are actually the way that spot price is derived.
Even if you could magically eliminate all the paper and electronic silver linked instruments, that would not drive demand for silver. Most investors and speculators in the paper are looking for the ease and liquidity of hitting a few keys to sell – they are simply not interested in holding physical silver anymore then they want those physical pork bellies in their office. No paper silver trading just means the traders will trade something else, not demand silver. You can’t trade donut futures, but that fact has not driven physical donut prices sky high.
Is there a Silver Shortage?
It is not the government, or the mainstream investment community saying there is a big silver shortage. I have never seen any government suggest there is a shortage. I've also never seen a big brokerage house claim the sky is falling and there is no silver. The major silver producers don't put out press releases about how they are 3 weeks from exhausting their reserves. The media MIGHT occasionally mention silver prices rising, and they factually report daily prices of silver just like every other commodity.
I am not a conspiracy theorist (sorry to those among us who are). One would think that if there was a global cover-up that credible info would leak out somewhere from some credible source in the world to support the concept that there is a looming silver shortage.
If you want to get this "information" then you have to seek out the people with a monetary or philosophical axe to grind. Number one source are the guys that want to sell newsletters (or advertising in newsletter websites). There are the penny mining stock promoters. There are the hardcore doomsday WTSHTF believers that figure the whole world is going to hell in a hand basket next week and that their 20 silver coins are their only hope. There are ebay sellers streaching the truth and saying stupid stuff to drive sales. Finally there are the unscrupulous "dealers" who want to sell over priced hunks of silver to unsuspecting sheeple by scaring them senseless out of FRNs or appealing heavily to sheeple greed.
Silver has plenty of uses for sure. But silver is not irreplaceable in pretty much every application, either right now, or in the longer term. Photography is an excellent example of a silver use that is dropping off due to new technology. If silver prices climb too much too fast the industrial demand will drop way off. If physical silver demand was far outstripping supply, the industrial users would be buying coins, bars and jewelry like crazy to melt them down for industrial uses and looking for ways to reduce thier reliance on silver. I’ve seen no indication that this is occurring on any scale.
Pretty much all the silver ever sold for investment purposes still exists and would readily return to the market if the price warranted. If silver prices climb too far too fast plenty of investment silver will come out of the safe deposit boxes and into the market.
Millions of ounces of newly mined silver are turned into coins, bars, and jewelry every year by governments and private industry. All of this silver gets absorbed into the investment market, plus a lot of the refined silver is recycled into new investment products. If investor demand was far outstripping supply, you would see physical prices seriously disconnect from spot price (a physical premium), and all the dealers would run out for long periods of time. Sure the US Mint is rationing Silver Eagles due to high demand for that specific product, but it is not like it has become impossible to buy physical silver at or near spot in small or even large quantities.
I will never make any money from this kind of realist writing, but I want to be honest and not oversell the opportunity. Yes, silver is relatively scarce (it is a precious metal after all). Yes, people run to silver for a variety of valid reasons including long term inflation protection, fear of economic uncertainty, a convenient way to store wealth for the long term, and because they are betting on higher silver values. I’ve bought silver for years for a variety of reasons including long term wealth accumulation. In fact, I have never sold an ounce yet. Silver can be a great investment, but it will be most satisfying when bought for the right reasons based on real facts and not hype.
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“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” – George Bernard Shaw.
Why Copper Bullion ~~~ Interview with Silver Bullion Producer Market Harmony
Passive Income blog |
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NotABigDeal
1000+ Penny Miser Member
USA
3890 Posts |
Posted - 08/14/2008 : 06:17:04
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quote:
Originally posted by legacypac
What is wrong with Paper Silver?
All kinds of paper trades tied to spot silver price. Some lump all the paper together and disparagingly call it “paper silver”, but this is not a fair general categorization. Some paper is backed by silver in a vault, some is only thought to be backed by physical silver, and some paper, like futures contracts and options, are clearly NOT backed by silver anywhere.
Futures Contracts and their sisters called Options are really just bets. They are monetary creations that represent a bet, and nothing more. Just as setting up a bet on a football game or election outcome does not directly create any additional football games or elections, betting on price movements of commodities does not change the fundamental or real demand for a commodity. No one expects or could ensure that any or all these futures contracts will ever settle with physical silver, any more then anyone expects a hundred thousand pork bellies to be delivered to their office to settle a futures contract.
But assume for a second that everyone could demand that these contracts be settled in physical silver one week. There is a finite amount of silver in the world, just like there is a finite amount of grain or hogs or oil at any moment. The covered sellers could open the vault and deliver the goods, or call in silver that is owed to them. The uncovered sellers of the contracts would have to wade into the market and buy the physical silver, perhaps creating some short term volatility. The buyers would then take delivery and would have to come up with the cash to pay for the silver (not just their gain or loss on the contract). No silver is created or lost in the process.
Now the next week all the buyers again require physical delivery. The covered sellers are fine, the uncovered sellers have to pony up cash (from the buyers plus the shortfall) at the current price to buy silver. Pretty quick no one is going to be writing uncovered contracts to sell silver unless they really believe the price will really fall because of the hassle factor. All the buyers that took physical delivery are going to be looking at their bars and wondering when to sell all that silver and how to get back all the cash they just sunk into physical silver. So really options and futures create no extra demand for silver, nor reduce the demand. They do admittedly contribute to market volatility, and are actually the way that spot price is derived.
Even if you could magically eliminate all the paper and electronic silver linked instruments, that would not drive demand for silver. Most investors and speculators in the paper are looking for the ease and liquidity of hitting a few keys to sell – they are simply not interested in holding physical silver anymore then they want those physical pork bellies in their office. No paper silver trading just means the traders will trade something else, not demand silver. You can’t trade donut futures, but that fact has not driven physical donut prices sky high.
Is there a Silver Shortage?
It is not the government, or the mainstream investment community saying there is a big silver shortage. I have never seen any government suggest there is a shortage. I've also never seen a big brokerage house claim the sky is falling and there is no silver. The major silver producers don't put out press releases about how they are 3 weeks from exhausting their reserves. The media MIGHT occasionally mention silver prices rising, and they factually report daily prices of silver just like every other commodity.
I am not a conspiracy theorist (sorry to those among us who are). One would think that if there was a global cover-up that credible info would leak out somewhere from some credible source in the world to support the concept that there is a looming silver shortage.
If you want to get this "information" then you have to seek out the people with a monetary or philosophical axe to grind. Number one source are the guys that want to sell newsletters (or advertising in newsletter websites). There are the penny mining stock promoters. There are the hardcore doomsday WTSHTF believers that figure the whole world is going to hell in a hand basket next week and that their 20 silver coins are their only hope. There are ebay sellers streaching the truth and saying stupid stuff to drive sales. Finally there are the unscrupulous "dealers" who want to sell over priced hunks of silver to unsuspecting sheeple by scaring them senseless out of FRNs or appealing heavily to sheeple greed.
Silver has plenty of uses for sure. But silver is not irreplaceable in pretty much every application, either right now, or in the longer term. Photography is an excellent example of a silver use that is dropping off due to new technology. If silver prices climb too much too fast the industrial demand will drop way off. If physical silver demand was far outstripping supply, the industrial users would be buying coins, bars and jewelry like crazy to melt them down for industrial uses and looking for ways to reduce thier reliance on silver. I’ve seen no indication that this is occurring on any scale.
Pretty much all the silver ever sold for investment purposes still exists and would readily return to the market if the price warranted. If silver prices climb too far too fast plenty of investment silver will come out of the safe deposit boxes and into the market.
Millions of ounces of newly mined silver are turned into coins, bars, and jewelry every year by governments and private industry. All of this silver gets absorbed into the investment market, plus a lot of the refined silver is recycled into new investment products. If investor demand was far outstripping supply, you would see physical prices seriously disconnect from spot price (a physical premium), and all the dealers would run out for long periods of time. Sure the US Mint is rationing Silver Eagles due to high demand for that specific product, but it is not like it has become impossible to buy physical silver at or near spot in small or even large quantities.
I will never make any money from this kind of realist writing, but I want to be honest and not oversell the opportunity. Yes, silver is relatively scarce (it is a precious metal after all). Yes, people run to silver for a variety of valid reasons including long term inflation protection, fear of economic uncertainty, a convenient way to store wealth for the long term, and because they are betting on higher silver values. I’ve bought silver for years for a variety of reasons including long term wealth accumulation. In fact, I have never sold an ounce yet. Silver can be a great investment, but it will be most satisfying when bought for the right reasons based on real facts and not hype.
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Nice post.
Deal |
Live free or die.
Plain and simple.
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your council or your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen."
- Samuel Adams |
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Copper Catcher
Administrator
USA
2092 Posts |
Posted - 08/14/2008 : 09:20:17
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| Bravo legacypac! That is great insight. |
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TenBears
1000+ Penny Miser Member
USA
1021 Posts |
Posted - 08/14/2008 : 13:28:26
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| To add to Ardent's original post, where is Ponce? I can hear Ponce now, "If you don't hold it, you don't own it." That is what is wrong with paper silver. |
"Rich," the Old Man said dreamily, "is not baying after what you can't have. Rich is having the time to do what you want to do. Rich is a little whiskey to drink and some food to eat and a roof over your head and a fish pole and a boat and a gun and a dollar for a box of shells. Rich is not owing any money to anybody, and not spending what you haven't got." Robert Ruark
there are too wild Indians...
there are too wild Indians...
there are too wild Indians...-----still taunted
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TenBears
1000+ Penny Miser Member
USA
1021 Posts |
Posted - 08/14/2008 : 13:33:06
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quote:
Originally posted by legacypac
quote:
Originally posted by TenBears
quote:
Originally posted by pencilvanian
Add to the list
22 Vault fraud. I may have mentioned this previously but it is worth repeating.
When it was legal to own gold again a friend of my father went to some outfit that sold gold and promised to safeguard the gold in their vaults. My father's friend declined to leave the gold coin with them even though they tried every arguement they could think of to have him leave the gold coin with them. A year later those who ran the company slipped away into the night. It seems the same gold coins they were selling were sold and resold to different people and the vault was only for show. The con men made off with the gold and the money they made off of the unsuspecting buyers.
(Gold coin in hand is worth ten in someone else's vault. Ditto for silver.)
Didn't someone have a post on a similar silver scam? You could buy silver and the company that sold you the silver was happy to store it for you, charging a storage fee of course. Next thing you know, hundreds of people own the same bag of silver and all are paying a nice little storage fee. What a scam.
I thought that was your scam. We almost traded my million copper pennies for all your imaginary silver.
The imaginary silver is all still there if you want it. I'll may even pay for shipping on your copper pennies. 
That was not mine originally. Someone reported the scam here, and in fun I offered a similar offer (scam) in our buy/sell/trade; tongue in cheek of course. We had some fun with it for awhile if you recall. However, someone came up with a better one: dehydrated water. I still get a chuckle out of dehydrated water when I think of it. |
"Rich," the Old Man said dreamily, "is not baying after what you can't have. Rich is having the time to do what you want to do. Rich is a little whiskey to drink and some food to eat and a roof over your head and a fish pole and a boat and a gun and a dollar for a box of shells. Rich is not owing any money to anybody, and not spending what you haven't got." Robert Ruark
there are too wild Indians...
there are too wild Indians...
there are too wild Indians...-----still taunted
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kieblera5
Penny Hoarding Member
USA
859 Posts |
Posted - 08/27/2008 : 10:26:23
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Democracy is being allowed to vote for the candidate you dislike least.
Never argue with an idiot. They will drag you down to their level and then beat you mercilessly with experience.
Caller number seven gets the Peace Prize!
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Why Paper Silver is not as good as Physical Silver
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