Paper silver is a "paper promise" to deliver silver that has yet to be mined. This creates an artificial "supply" which serves to keep prices lower than they would otherwise have been. For every ounce of real silver there are at least 100 ounces of paper silver being traded. The problem will arise when people in possession of these contracts refuse to accept fiat but insist on delivery of physical silver instead. Of course COMEX would go broke if this occurred and at this point the "paper price" would become irrelevant. While there are still gullible traders who accept fiat instead of physical delivery the con can be perpetuated. however the list of idiots willing to accept fiat will dry up sooner or later when they realise that the paper promises they hold are worthless.
Basically what YKY said but just to add on that it is exactly what happens in our fractional banking system. Banks are only required to hold what 5%? 10%? of liquid capital in their accounts and lend the rest out or invest in something for more returns. When people suddenly demand their money back at once the banks get screwed because well, they don't have it! Something we may know as a "Bank Run" with the long queues of people and the complete lack of confidence in the banks = crash. So if suddenly people demand physical silver hell yeah it'll be fun times watching COMEX crash and burn. At least with a fractional banking system it makes sense because the theory allows for money multiplier, I fail to see the benefit or even the need for so much excessive paper in the silver market other than to play the market like a game.
How? The if there was a sizable difference between spot and physical wouldn't heaps of people just take out contracts (spot price goes up) stand for delivery and sell the metal into the market (physical price goes down). I.e. It is self correcting.
I think what many fail to understand is that "They" control the spot price and the reference for the value of silver in terms of fiat currency AND the value of the fiat currency in which it is measured!. The (reported) fact that there is 100 x the amount of paper silver (derivatives) as there is physical means that the spot market already doesn't represent the phycial asset/commodity. The human psyche's narcissistic desire for definition by authorities means that the spot price is here to stay until: 1) A competing sovereign sets up their own commodity exchange, like China, and usurps the role of silver pricing authority; or 2)Civilisation collapses into an agrarian and subsistence lifestyle (post carbon tax, perhaps!!) and physical silver and gold becomes the means of exchange for financial transactions. My money is on 1.
At some point in the future when the physical price decouples then this would have happened for a reason - there would be little to no chance of delivery taking place ... so in short - NO this would not happen
this default would it not move the spot price up? Surely a default in one market would cause a run on others sending spot skyrocketing?
It's simple. The real price of silver is what you pay over the counter to buy it. Its obvious the paper wealth fraud will be widely exposed very soon and when this does people will want tangible silver. They will be prepared to pay what they have to to get it in their hands, regardless if the paper silver price is much, much lower. The financial house of cards will fall very very quickly and when it does human reaction is to go with the tangible. That's my take on it.
Is that statement above NOT what is happening now ? How do you think that you are buying silver bullion otherwise ? Mines are 'producing', mints are minting, dealers taking delivery, we are buying. Look above and see how many transactions occur til we take physical delivery and smile. And the best thing * we all made money in the process * !!! ( some have realised and the last guy you & me unrealised gains ) but we all are happy that we could get what we bought at the prices we paid.
Came across a nice article with plenty of meaningful charts below http://www.worldofwallstreet.us/201...dinary-happens-to-the-goldsilver-ratio-1.html
wheres somewhere (website) i can get a live streaming GRS, updated like a spot price. all i can get on my iphone now is like a goldprice.org chart that hasnt moved for the last 3 days!
The problem is this: Newbie precious-metals investors tend to chose silver, causing silver price to rise faster than gold price. When that happens, there is a bunch fast papertrading people that sell some gold to buy silver. They they wait until enough newbies caused the silver price or the GSR to reach a certain level. At that level, they sell their silver to buy gold again. This causes a sudden silver price drop that causes doubt, more doubt, then panic. Alot newbies then sell too. Eventually necessated by margin hikes that used the volatility around the swappers' chosen price level as excuse. Now, those swappers didnt use all the fiat they got for their silver to buy gold. They kept aside a part, ready to buy again at silver's deepest drop point. And then the story repeats itself. So, I believe the silver market acts as a milking cow for the gold market. Experienced fast trading paperguys that lure newbies into buying at an artificially driven up silver price and panick-selling at an artificially driven down silver price. If one wonders why GSR is higher than in older times, I think this is the explanation. The existence of fast papertrading. Even if the amount gold would becomes 5 times the amount silver, gold price will remain to be much higher, instead of 5 times lower. At least, that's my impression after looking at gold/silver market for just 6 months. It's of course a pity for the PM newbies that take the losses, and also for silver as such, since the volatility these fast papertraders cause also detoriates silvers role as money.
Forgive me for my ignorance,but what is "GSR" I am a little curious,that is all. Future price of Silver With so much turmoil in this world,inflation,EU debt,US debt,price of oil,Israel about to beat the crap out of Syria,Hezzbolah,Hamas,I can only see up,up,and upward moves with both Pm's.Yes,there will be some downward pressure,but I do not care. People,being easily driven by fear,will run into "real monies" sooner than later. Newbees should not worry,just hold your Silver,Gold,you cannot lose. The future is a very frightening place,but having a little Silver,or Gold will help everyone sleep a little better at night. Thankyou SBS
GSR is the Gold to Silver ratio. Basically how much Silver can be traded for Gold (equivalent weights). So for example, 1oz of Gold will trade for 40oz of Silver (ignoring premiums on both silver and gold) when GSR is 40.
I am new and forgive my ignorance, opened this thread to work out the GSR I understood the point but was happy SilverBabySilver asked the same question. My further query is where do you actually make these swaps of Silver for Gold. I am in regional Australia so there are no big dealers I can walked into here. Presuming I was in one of the capital cities, are dealers always willing to make these swaps just by walking into the premises?
Entirely possible - if there's an industrial commodities selloff because of economic fears, I fully expect silver to take a hit ratio-wise in relation to gold.
