New ‘Concepts’ for my Gold/Silver Commentators to Consider!
I listen to King World News on a regular basis for gold/silver updates. Today, Eric Sprott was interviewed for some 30 – 40 minutes. Eric is a billionaire and is heavily invested in the gold and silver markets. His understanding and knowledge of the markets is extensive. He talked much about gold and the difference between the so-called ‘Paper Gold’ market and the ‘Physical’ market today. His commentary, however, could be more realistic and up-to-date if he would rethink some of the ‘words’ and ‘concepts’ which he expressed verbally over the air. I am not criticising him or his knowledge on the markets…but I would suggest some up-dates on the ‘words’ expressed. Let’s talk!
Eric Sprott talking on the King World News Website!
His commentary is similar to a host of other media pundits, gold speculators, and gold investors which I listened to recently (including at the recent Silver Summit). None seems to update their ‘thinking’ and their ‘word’ choices…now that our markets have changed from the Open OutCry System to our Electronic Computer System. This does create confusion for many listeners when ‘words’ like ‘paper’ and ‘printing’ are used for our new electronic markets. Here are some of my suggestions for improving the communication of these confusing concepts within our gold and silver markets so that new listeners can better comprehend what is being communicated. The key to understanding is often the choice of the ‘words’ which we express.
The Open Outcry markets are now mostly eliminated and electronic markets predominate!
First of all, some brief history. Farmers used to refer to two types of markets where prices were determined (prior to our electronic age). The ‘spot’ market and the ‘spot’ price used to refer to an exchange of the actual ‘physical’ commodity for an immediate ‘cash’ price. This market was a direct exchange of say bushels of wheat, corn, etc. for a cash price. This could also apply to a commodity like silver or gold. Miners would exchange their bars and coins in a ‘spot’ market for a ‘spot’ price. Then another market emerged which was called the Forward market. This later became the Futures market. This is where the concept of a ‘Paper’ market developed.
Farmers would sell ‘forward’ (to speculators) production yet to be produced so that a ‘forward’ price could help with managing their costs and production risks. Miners would do likewise. A ‘paper’ price in the ‘forward’ markets would be represented by an actual ‘paper’ futures contract. The buyer and seller would actually exchange a ‘paper’ document to represent the transaction. This has now changed (mostly) with our recently developed electronic markets. Today, there is no actual ‘paper’ being exchanged (between traders) as an electronic (virtual) transaction (contract) is what happens when a futures contract is purchased.
The cyber dollar and electronic trading creates ‘price discovery’ today!
Today, I can speculate in an Electronic Futures Market with my computer platform (say on the Globex Electronic Exchange or similar) and I can buy ‘virtual’ contracts (not ‘paper’ as in the prior paradigm). Virtual contracts are now bought, sold, and prices are determined within our computer screens (which we now call Cyberspace). There is no actual ‘paper’ market which represents our transactions today. Paper has been eliminated and we now speculate and invest in an Electronic Futures Market (using our cyber/digital dollar). Cyberspace has replaced the Open OutCry System and this has created a dual cyber market for both gold and silver (for price discovery). The exchange of ‘paper’ documents is now history and ‘virtual’ contracts are now in vogue.
When Eric Sprott or any other commentator communicates about the TWO different venues which determine the gold/silver prices it might be more clear if he and others would update their ‘words’ to communicate the realities of our new Electronic jargon. We now live with ‘virtual’ contracts which get consummated within Cyberspace (between the counterparties) and our currency unit is now also a Cyber unit. Our ‘dollar’ is no longer ‘printed’ (with rare exceptions) and all bank transactions are now nearly 100% electronic and within Cyberspace. So, today, we have a ‘cyber’ dollar and we exchange ‘virtual’ contracts on Electronic Exchanges. Most all ‘futures’ contracts are now ‘virtual’ and trading is ‘electronic’.
Commentators need to use ‘words’ which reflect today’s electronic/cyber markets!
So what does all this mean for our gold/silver pundits, commentators, media personnel, etc. I would suggest that we could better communicate the realities of today’s markets if we updated our ‘thinking’ and our ‘words’ to reflect what is actually happening in today’s electronic markets. Today, I can trade almost any commodity, stock, bond, or derivative contract on one of the Electronic Exchanges. I trade with my computer and a computer platform which is connected electronically with another electronic exchange. Open Out-Cry is obsolete and mostly eliminated for all our markets. This means that I now trade in Cyberspace and I use cyber/virtual contracts and cyber/digital money.
Today the ‘word’ PAPER is not accurate. Contracts are now VIRTUAL!
This means that there are TWO types of ‘prices’ which get expressed within my computer screen daily (24/7). The cyber ‘spot’ price (now determined within our electronic ‘futures’ market via electronic futures trading) and the so-called ‘paper’ gold price should now be referred to as the ‘virtual/cyber’ gold price (the word ‘digital’ could also be used). I do not exchange any actual paper certificates/documents/contracts today as nearly all trading is now within Cyberspace and my computer stores all these virtual contracts (usually in the cyber cloud or on a hard drive). We also do not ‘print’ paper notes for our currency today (only some 4% of money transactions are now done with a paper FRN). The 96% is now cyber money, cyber currencies, digital transactions…and nearly all monetary events are electronic.
This picture represents today’s electronic/cyber markets!
I might also add that electronic trading allows me to trade ‘virtual’ futures contracts (naked) as I can use HFT trading (or automated trading) at near the speed of light with no settlement or delivery of the physical commodity. Gold and silver is electronically traded but rarely is the physical commodity actually delivered. This creates huge price distortions in gold/silver (price discovery) as there can be 250:1 ‘virtual’ gold ounces outstanding to each actual ‘physical’ ounce in the vault. This reality produces an ‘artificial’ supply of virtual gold/silver (when trading electronically) which then ‘suppresses’ the ‘spot’ price for the real physical metal. This is why we have experienced such declining ‘spot’ prices over the past 4.5 years.
This is a picture of our electronic New York Stock Exchange! All markets are now electronic! Commodities are also traded mostly electronically!
Conclusion: We now live with electronic markets for trading gold/silver and nearly all commodities. This means that trading happens within cyberspace and computer machines can manipulate all our spot prices (via these ‘virtual’ trading contracts) and via all the different trading strategies allowed by our CFTC and other Federal Authorities. The concept of a ‘naked’ short is what creates price suppression for the cyber spot price of gold and silver (within our computer screens). This is unfortunate as our physical transactions must accept the cyber spot price when trading the physical. What is now needed is to ‘separate’ the physical market price discovery from the virtual/cyber market price discovery. In reality, there should be NO ‘virtual’ gold/silver being bought or sold IMO.
All trading in the physical metal should take place in a ‘spot’ price market!
All price discovery should be done in a market where the actual physical commodity is traded. The word ‘spot’ should mean that the ‘price’ is determined as the physical commodity is being exchanged or traded. Speculators who desire to play on the cyber markets with their computers (trading virtual/imaginary contracts in cyberspace and ‘naked’ shorts) should do so without having any impact upon the physical ‘spot’ price transactions. Our CFTC and the CME should think about separating these TWO markets so price discovery can be real. What goes for ‘price discovery’ today is Fraudulent! Give some thought to changing your ‘thinking’ and ‘words’ now that our markets are all (mostly) ELECTRONIC. Enjoy our Holiday Season! I am: https://kingdomecon.wordpress.com.