By Clint Siegner, Money Metals Exchange
Gold and silver investors buy metals because they are scarce. Precious metals are by nature difficult to find, and hard to produce. Consequently, above ground stocks are limited and valuable, particularly when priced in unlimited fiat currencies.
The bankers and government officials behind these fiat currency systems don’t like stable monetary benchmarks such as gold putting their inflation schemes on full display. They absolutely hate that gold works as a refuge.
Inflation is a stealth tax. Instead of overtly raising taxes, politicians simply borrow and print the money needed for more government. They just need people not to notice.
Which brings us to the futures markets for gold and silver. They are the solution to the difficult scarcity problem that metals pose for bankers and bureaucrats. The futures markets are the primary tool for managing prices and discouraging people from turning to metals as a hedge against inflation.
Craig Hemke of the TF Metals Report published a recap of futures market activity in 2019. It perfectly captures how their tool works. They replaced real markets for actual gold and silver with a market for paper gold and silver proxies. Then they severed all connection between the proxies and physical metal.
Hemke writes with regard to gold:
For the year, Comex Digital Gold was up 18.75% from $1,280 to $1,520. An 18.75% gain is certainly impressive, and we'll take every basis point. However, it's even more impressive when you pause to consider that the total amount of Comex contracts was increased by 74.2% from 451,460 to 786,166. That's an increase of 33,480,600 digital, pretend ounces all while the total amount of vaulted gold in the Comex depositories was barely changed.
And for silver:
For the year, price rose 15.1% from $15.55 to $17.90. Total contract open interest rose from 176,159 to 229,680 for a total of 30.4%. Again, that's a total of 1,150,000,000 ounces of fantasy silver on an exchange when the ENTIRE WORLD produces less than 900,000,000 ounces in a year.
The bullion banks are selling a lot of paper gold and silver.
Imagine the gold price if demand for more than 33 million ounces were actually directed into the physical bullion markets, where supply is scarce and limited, rather than the futures markets where banks supply contracts for all the buyers who show up.
And barely an ounce of actual metal has to be found, mined, refined and moved into bullion bank vaults.
This mechanism works beautifully for those who prefer to keep a lid on prices. Precious metals and the topic of honest money get almost zero attention.
Almost no one is talking about the trillion-dollar federal deficits. In 2019, the Federal Reserve returned to monetizing hundreds of billions in federal debt. Most people now assume that is normal.
Perhaps most important for the central planners trying to maintain the fiat dollar, there is very little discussion about why gold and silver prices are rising.
Bankers and bureaucrats are trying to herd people into the Federal Reserve Note and other preferred asset classes, including bonds. They don’t want people buying, or even talking about inflation and financial turmoil hedges like precious metals.
These people are not good shepherds, and they don’t have the public’s best interest at heart. As such, it is probably not a good idea to follow the herd.
Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.