In a way, there would be no point in understanding history if in fact it did not repeat itself so often. In this latest round of bankers "screwing the pooch", I find myself asking, "why on earth are metals producers sitting idly by- willing to take whatever crumbs bankers give them for their product?" It's a real head scratcher when you think about it. Do I just sit passively by and hope that my captors, the bankers, are benevolent? Or do I take action designed to improve my position and survivability and screw the bankers?
Who benefits the most from futures markets? The producers? I don't think so- not by a long shot.
Reduce supply and lift price. The problem of course and I will take it to the extreme, is this. Commodity markets and the underlying supply of any given commodity are manipulated by futures to such an extent- that players never take delivery of the underlying commodity. Futures bets are almost always settled in cash.
You wonder if there were only one ounce of silver left in the world, if bankers would continue to trade millions of ounces- all re-hypothecated on that last remaining ounce of silver. Of course that is a little ridiculous and far fetched- but not entirely insane. Any one who calculates worldwide production of silver or gold- realizes that this is not such a ridiculous proposition. Contracts, with amounts totaling well beyond known annual worldwide production, are traded monthly.
It is a bankers fantasy. To make tremendous amounts of money by leveraging and manipulating a market with no actual need to ever- fully produce any significant quantity of the underlying commodity.
That is the whole principle behind banking. Loaning money on assets you don't actually possess. They call that fractional banking. You only possess a fraction of what you have loaned out. http://en.wikipedia.org/wiki/Fractional_reserve_banking
Of course that scheme goes to hell during a bank run when bankers are forced to produce ALL of their deposits to satisfy customer demand. They don't have them.
The same holds true for precious metals. If all the players holding contracts stood for delivery at the delivery date- the sellers couldn't produce the corresponding amount. So...
Why would you sell your product into a market that manipulates the price? Why sell your product at all? Why not just store silver and gold as you produce it? The problem of course is that your competitors will benefit from rising prices while your product is stored and you still need operating capital. Unless... you limit available supply and...
Form a cartel. http://en.wikipedia.org/wiki/Cartel
I've been mulling the idea over for weeks. I think all of the necessary ingredients are there. The world needs a real store of value and wealth. Miners have it. In fact, the world is going to come calling soon because the bankers have screwed the pooch. There's just not enough precious gems or artwork to go around...and if I owned a mine I'll be damned if I would give away my product on the cheap.
The oil producers figured this out long ago.
The FED has diluted the petro dollar and OPEC simply raises the price of oil. Everyone benefits except consumers. The villain ain't OPEC. Imagine the poor saps that are forced to buy our worthless dollar, with their even more worthless euros, to buy oil. No wonder the world hates us. We steal oil, export inflation, and kill a few people here and there.
I think the world of fiat money gets murdered when precious metals producers finally refuse to participate in crooked and rigged markets. Real price discovery would happen. The dollar would get crushed.
At any rate, I don't think there are that many big producers of precious metals. Worldwide, maybe 30 or so giant miners probably control 75% of all production. That is just a wild ass guess. The smaller producers would benefit whether they were in or out. You might even bring in countries that keep production quiet- countries like China. Thirty or so big miners is not such an unwieldy amount that they could not agree on production quotas knowing full well that sooner or later, people have to come calling. Their product is the only recognized money. Recognized for thousands of years. There would be no benefit in knowing history if you couldn't capitalize on it.
I'd hate to miss an opportunity like that.