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Originally Posted by J.R.
Yeah sure, I understand this part. All I'm saying is that the effects here are smaller for gold than other commodities, and smaller now than historically. This I understand.
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The suitability of using the market for the purpose you want is the bigger issue, and the large potential objection is the first part of my post.
This is the part I know less about.
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Futures prices are derivatives based on the Spot price of Gold, which is in itself a derivative of the "active month Contract price," plus or minus a monetary consideration based on the LIBOR/GOFO/Lease Rate. So interest rates and short position can influence/determine spot and the futures market.
OK, I'm already with you on that.
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Gold in hand is not the same thing as the futures market (fiat controlled). Hard core crazy goldbugs talk of distinguishing the fiat price of gold from the real or true price of gold.
This is what I'm trying to isolate. Since I can go out right now and buy gold at spot with my fiat dollars, well, I'm not really sure what this sentence means. Gold is priced in something, if we price it in dollars, what is the distinction being made?
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Organizations such as GATA and individual market analysts like Ted Butler believe that the bullion banks and commercial traders manipulate the gold and silver futures market by naked short selling gold and silver. Until recently most traders did not demand delivery on these contracts ie. they were only interested in currency settlement. If true, this manipulation would produce false price signals that did not reflect physical supply and demand.
Listen to the Ted Butler interview above to get the flavor.
I listened to a bit, although to be honest, I prefer the written word. As long as some people are taking delivery, that shouldn't be a big issue, and it should be possible to tell whether there has been a notable failure to deliver.
As far as I can tell, the argument for depressed future prices relative to "truth" would be fears of the counterparty risk I mentioned above -- i.e., when the time comes, you won't get gold or something you could use to buy gold (i.e., you'll get lots of dollars but no one will trade gold for dollars in two years).
It seems to me that final point is the main consideration here which drives people to value gold higher than the market (i.e., LIBOR is at 1%, storage is cheap, so the other structural considerations can be taken into account and still the implied future cost of gold is much lower than people are predicting in this survey). Do you consider that a fair assessment or am I misinterpreting you?