5 ms·

There's much more silver owned by investors than there is physical silver in the world. It's the same idea: you have a synthetic version of an asset trading fo

by thefj 6y ago

There's much more silver owned by investors than there is physical silver in the world. It's the same idea: you have a synthetic version of an asset trading for the same price of the real asset. If people start demanding the real asset, there isn't enough of it to go around and prices start to rise. Not saying that's what's going to happen, but it's not absurd.

aww_dang 6y ago
Typically there's a clause where the investor can be paid the cash equivalent instead of actually providing the physical metal.
- thefj 6y ago
  Futures have to be settled physically, if carried to expiration, as far as I know
  - seafoam 6y ago
    Retail brokers do not allow the position to be carried all the way to the first delivery date. For example : https://ibkr.info/node/992 https://ibkr.info/node/992
    - kthejoker2 6y ago
      Right ... so if you can't undertake delivery, they sell it out on the spot market. If everyone in the market can't undertake delivery, the buyers on the other side who can will have their pick of orders, and prices will plummet. You'll be selling heaters in Hell.
  - aww_dang 6y ago
    https://www.moneymetals.com/news/2020/03/27/gold-traders-are-paid-not-to-redeem-comex-efps-001995 https://www.moneymetals.com/news/2020/03/27/gold-traders-are... There's a bit of controversy around this.
- kthejoker2 6y ago
  You realize this doesn't actually work, right? If it did, mining companies would be out of business almost instantly - their product being only useful in the market when it's worthless. Futures contracts involve actual carrying costs - storage, transporation, delivery - with real physical goods; even if you personally aren't involved in the physical aspect (by trading derivatives or the like) someone else (e.g. the people with actual silver demand for their companies) is, and they'll make sure you can't just drive the price of silver up higher by cornering the physical market.

by thefj 6y ago

aww_dang 6y ago

Typically there's a clause where the investor can be paid the cash equivalent instead of actually providing the physical metal.

thefj 6y ago
Futures have to be settled physically, if carried to expiration, as far as I know
- seafoam 6y ago
  Retail brokers do not allow the position to be carried all the way to the first delivery date. For example : https://ibkr.info/node/992 https://ibkr.info/node/992
  - kthejoker2 6y ago
    Right ... so if you can't undertake delivery, they sell it out on the spot market. If everyone in the market can't undertake delivery, the buyers on the other side who can will have their pick of orders, and prices will plummet. You'll be selling heaters in Hell.
- aww_dang 6y ago
  https://www.moneymetals.com/news/2020/03/27/gold-traders-are-paid-not-to-redeem-comex-efps-001995 https://www.moneymetals.com/news/2020/03/27/gold-traders-are... There's a bit of controversy around this.
kthejoker2 6y ago
You realize this doesn't actually work, right? If it did, mining companies would be out of business almost instantly - their product being only useful in the market when it's worthless. Futures contracts involve actual carrying costs - storage, transporation, delivery - with real physical goods; even if you personally aren't involved in the physical aspect (by trading derivatives or the like) someone else (e.g. the people with actual silver demand for their companies) is, and they'll make sure you can't just drive the price of silver up higher by cornering the physical market.