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Silver: Physical vs. Paper

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  • Silver: Physical vs. Paper

    ETF's for silver are being divested, while silver coins are being swallowed by investors with no end in sight. Will this cause high volatility in silver pricing? Is it just China, or are the small investors getting wise and doing the same?

    Is paper silver, just that: a poor substitute for the physical?

  • #2
    Re: Silver: Physical vs. Paper

    I expect there to be more volatility due to vigilante/speculative physical buying to try to bust the comex silver dealers every delivery month (and to break the banks/government price manipulation and paper shorting scheme). That's a fun reason to buy physical. There is a cult out there, led by Max Keiser, that swears by physical silver as their 100-1 (speculated paper to physical short ratio) leveraged tool for revenge on JP Morgan and the U.S. government.

    And while there's virtually no incentive for any government to convert to a silver standard before its too late, it really does make sense for China, to back their future reserve currency, and the Latin American countries that produce a lot of silver. I think there is a high probability China will accumulate for this purpose (but not announce it for years), and a low probability that any other government would willingly go on to a silver standard, due to the cost of minting coins. But I see it as a potential nationalistic ploy for Latin American political opponents, especially in Latin American countries that have high inflation and/or a currency crisis and produce a lot of silver (Peru, Mexico, Venezuela). So there's potential there for a breakout if and when a silver standard currency comes back.

    A third source of volatility is ETF investment inflows and outflows, which are typically digital, but backed by physical. There will likely be a few elevator rides that are enhanced by ETF activity, such as the ride down going on right now, or the opposite if one of the items above happens, and investors sock funds into Silver ETFs within minutes.

    I see physical 1 ounce silver coins as a globally accepted (if only black market) currency that most everyone should have as part of their emergency fund. What good is a 2 week emergency fund if the reason for the chaos is a currency crisis?

    I personally do not have any physical yet, but have a plan to convert digital to physical (a monster box to share with family and friends) within minutes, plus delivery time. Given the Itulip forecast is for no hyperinflation in 2011, a general decline in gold and silver prices, (and I can't bust the Comex , I plan to wait until Itulip signals hyperinflation on the horizon before I start "stacking".

    So paper is a poor substitute for physical if you want to help the cause to bust the price manipulation by the banks/government (more likely), or if it is to be part of your emergency fund, to insure against a currency crisis (less likely to be needed).
    Last edited by FondoFinder; 01-25-11, 11:49 PM. Reason: Edited links.