Fri, Jun 24, 2011 - 4:16pm
There was some question as to what would happen to the price of silver in the event of a COMEX collapse, so I thought I would create a new topic to address that.
I would hope that by now we know well enough that JPM won't be taken down by this. They are a zombie bank, and the only way to take out a zombie bank is to remove the head, or destroy the brain. This is a solid chest shot. But killing JPM isn't the point. The point is increasing your purchasing power.
That said, here is what happens when the COMEX goes bust, totally defaults, declares force majeur, or starts delivering SLV paper only (same as a default). Currently, the COMEX is the ONLY silver futures exchange. This means that ANYONE wanting to hedge future production has to do so through them. It also means ANYONE wanting an assured price on silver to be delivered in the future must do so through them. When they shut down/can't make with the silver deliveries, those who wanted the silver will see that. They will be forced to buy off of the physical market, and keep it themselves.
Do you see where this is going? The buyers want an assured price. That means they will buy NOW. The sellers want to hedge, but they can't. They also can't sell future production. Oh shit. That means all of that demand that is normally shifted off to the future hits the physical market NOW.
This is called an industrial panic. The users will start by buying now to lock in prices, and take delivery, which will result in higher prices, causing those who need it in the future, but were waiting until they needed it to also buy now, driving prices up, and so it will go, higher and higher, either until an inelastic commodity becomes elastic, or until the silver mines catch up (unlikely to be soon as they are barely able to keep pace now).
Remember, this is in an environment of extremely low inventories. There is less silver on the surface of the Earth than there has been since records started being kept by the ANCIENT EGYPTIANS. And for those who don't know, the price of silver back in those days was twice that of gold. And there was less gold on the surface too. IF we had the inventories, then that would dampen the price rise, as said silver would flood onto the market as the price exploded. That is unlikely to be the case this time. We don't know how much is in private hands, but you can bet that much of it won't be coming out at any easily foreseeable price, as $50 wasn't enough to bring it out in volume.
So relax. Don't worry. Just stack away any extra money you have, and sell when there is industrial user blood in the streets. And sell for GOLD.
Edited by: tmosley on Nov 8, 2014 - 5:09am