Currently being investigated by the Commodity Futures Trading Commission, the silver futures market is heavily manipulated. In fact, some analysts think investment banks have actually sold more silver short than the quantity that actually exists above the surface of the earth!
Naked Short Selling
Naked short selling is present in both the futures and stock markets. While naked short selling is shunned, investment banks have literally made billions by artificially driving down stock and futures prices by selling more of the stock or futures than actually exists. This way, they can sell the product now, and then buy it back at a guaranteed lower price, as they have already flooded the market with phantom silver.
Futures Market Madness
Most silver is traded on the futures market, where buyers and seller meet to exchange cash for silver at a predetermined price and time in the future. Much of this silver is kept in storage in bank vaults and in the custody of market makers, who likely never physically transact their own silver. Instead, speculators buy and sell silver that no one is sure really exists. Believe it or not, an investment bank can claim they have millions upon millions of ounces and place them up for sale – all without proving that they can make delivery.
Dilution of Value
Theoretically, there is only X amount of silver being demanded by investors and only X amount of silver in the supply. However, in the futures market, the amount of silver can expand by virtue of a market maker selling future positions, hoping to buy the metal in the future at a lower price.
This is very much equivalent to the derivatives market, or a paper market, that has grown to ten times the output of the world simply by leveraging assets that may or may not be able to back up the bets.
Avoiding Metallic Paper
Physical metals are the only true way to ensure that you actually have the precious metals you wish to own. Even companies that offer storage of your gold or silver may be floating some of the exposure on the markets, and there have been many instances where storage firms oversell their inventory.
Luckily, with silver coins, you’re able to see, hold and touch your own investment and know that you have as much silver as you purchased. This same fact does not hold true for other silver investments, which may offer exposure to silver, but have no tangible ties to the metal itself.
Silver’s Big Move
After the CTFC completes its investigation into the silver markets and the amount of silver is quantified, investors will finally know how much silver is actually available on the market for delivery. It is certain that the amount of real, physical silver in existence is much lower than what is quoted on the futures market. This discovery could generate one of the biggest movements in silver prices, as all of the money invested in paper silver will be forced to be reallocated to physical stocks of the metal.
Of course, there are many choices which type of physical silver is best for investing. Many find that pre-1965 advantageous for their low premiums and their relative barter safety.