Monday, 23 May 2016
When I want to buy a share of stock in a company, I am paired with a seller of a share of stock. Between us we agree on a price (price discovery) and make the deal.
- There is a limited supply of company stock available to be bought and sold this way. Printing more stock certificates than shares exist in a company is called fraud.
This is NOT so with the COMEX. If you want to buy a paper bullion 'contract' you are paired with a seller of a paper bullion contract...whether or not they have any Gold or Silver bullion....all the seller has to do is print a contract. You are not paired with anyone who will actually be delivering physical bullion to you.
- The COMEX bullion banks hold a limited/finite supply of physical bullion, but they have control of the paper contracts for bullion, and that supply of paper is unlimited. This is how there are now 542 paper claims for bullion against every single ounce of of physical bullion held. Delivery is NOT intended to be made, and anyone redeeming a contract can expect to get paper fiat, not physical bullion.
Some questions worth asking are:
- When a paper bullion contract is redeemed in fiat paper, what you have is paper for paper. This is slightly better than if a paper contract is defaulted on (think MF Global) and what you have is the original (now worthless) paper contract only. Do you think Venezuelans would rather hold their paper fiat (Bolivars) today or physical bullion? And the customers of MF Global?
- If paper (fiat or contracts) is really worth anything, (a) why did China's ICBC just buy Barclay's Gold vault, and (b) why do Central Banks all hold physical Gold but give you paper?
From Theo Spark at 11:21