A friend of mine recently asked me about the gold market – knowing that over the years I have traded and followed the gold and silver market. I think he was a little surprised about my answer – so I thought that I would post it for the entire world to see.

My first response was in the form of a question – “which gold market – paper or metal”? He did not know what I meant – so I explained: The futures market for gold is a paper market. Contracts are traded for future delivery of actual metal – but for many of those contracts no metal is actually ever delivered. The contracts are simply closed before the delivery date. The futures market was designed to be representation of the current price at which the commodity (in this case gold) was currently trading – plus a differential that was based on the expectation of the price at which time the contract became due for delivery. That future price could be higher or lower than the current price, based on the market’s assumption of future value.

In a commodity market that is operating correctly, current price is determined by supply and demand and the futures differential is the market’s prediction of what that supply and demand will be at the time of delivery. The futures market for any commodity plays a vital role in the free market price for that commodity. For example in enables farmers to “pre-sell” their production, thereby reducing the risk of farming. For miners, such as gold and silver producers it enables them to assure a future price level that can support the high cost of developing properties.

Generally, most futures markets, work pretty much as intended. For many years, however, the gold and silver markets have increasingly been manipulated by the big bullion banks – with the tacit (if not overt) approval of the government.

The recent price collapse in the gold market has been the result of the manipulation in the paper market – the market for the actual metal has remained strong – yet the paper market has been driven down by the big bullion banks. And the CFTC (Commodities Futures Trading Commission) have sit on their thumbs and done nothing. Of course the government has a vested interest in maintaining a control over the price of gold – particularly when they are running the money printing presses 24-7-365.

So I just quit trading silver and gold futures – but I definitely have not lost interest in the metals themselves. Fiat money has NEVER WORKED IN THE LONG RUN! And it will not work in the long run for us this time.

An ounce of gold cannot be created by a printing press – it will always be an ounce of gold. Those paper dollars are only worth what you can trade them for – and that is getting to be less and less. Since the FED was given the responsibility for the dollar it has lost more than 90% of its value! And they are working through that final 10% as fast as they can!

So I told my friend, forget the paper market – that is Fools Gold! Hang on to all the real gold you can. The day is fast approaching when the metals market will overwhelm the paper market and gold will be worth more of those paper dollars than you can imagine.

I do not know when this will happen, but that it will happen at some time in the future is a virtual certainty. And the time is closer than many think. At least, that is my opinion!

 

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