What to avoid when it comes to silver investing:
As silver is a more than a simple market behind the scenes when you factor in manipulation of the paper price, which is what is used to price the physical metal in the physical market, through the creation of silver ETF's and the ability to trade on margin- we want to provide you with some tips or guidance investors, new or old alike.
This is just the way it is; we don't blame or it or promote it but we recognize it as it is, and prepare ourselves to be on the right side of the situation to both protect ourselves and to profit. These are some of the don'ts that you want to avoid when it comes to silver investing.
Futures & Options:
Futures and options offer the trader leverage. Futures are basically contracts to deliver a specific commodity, in this case silver, in a set amount, price, and time in the future. They are traded on the stock market just like stocks and on commodity exchanges. This is NOT THE SAME THING as owning physical silver.
This is basically a note saying that someone has to deliver that amount to holder of the note at a set agreed time and price in the future. The problem is this use of these in the stock market artificially increases the perceived supply of the commodity in the market. When it comes to silver, a metal whose price depends highly upon its rarity, this type of trading acts a heavy downward force on the price of silver. We believe that owning these is a risk - unless you really know what you are doing - and you are much better off owning the actual physical metal.
Because there is so much more "paper" silver than there is of the physical, the inevitable result is that there will be some kind of default coming in regards to these types of trades. In this type of event, the physical market would separate with the paper market with the price of physical silver skyrocketing while the price of paper silver stays the same or decreases. Even the iShares silver etc has a statement saying that the price of iShares can be independent from the price of silver and may decline.
The other problem with these types of contracts is that you don't control what's going on. The rules of the game are not made by you and you can't do much about it. I have to mention what happened in 1980 when the COMEX and CFTC - the commodities futures trading commission changes the rules of the game by stopping new futures contracts, which caused the price of current contracts to go down. The Hunt brothers, who had a huge position of paper silver leveraged on margin, lost a vast sum of money from this rule change. You don't want to be caught in that type of situation, so it is best to hold PHYSICAL and avoid the paper game.
Silver ETFs or exchange-traded funds are a basically a stock that track the price of silver as a commodity. We believe these are used to manipulate the price of silver. Because more certificates of paper are issued than physical silver in their vaults, they are artificially inflating the supply of silver.
There are also funds that promise to delay gold and silver at a future date similar to futures and options. Because of the high chance that they do not have all the physical silver to cover all the certificates issued, we recommend not investing in these types of investment vehicles unless you really know what you are doing.
Because the markets can be manipulated by sudden changes in rules, and because an individual or group of with a lot of money can influence the market suddenly, buying silver on margin can be very dangerous. For example, when silver was in the 40s early this year, the price of silver was moving the way it should be moving due to supply/demand fundamentals- upward. It seemed like a great way to trade on margin because everything going for silver to the upside. Then all of a sudden margins were raised and you saw silver drop from 49 something to where it is today in the lower 30s. If you invested heavily on margin you could have lost a lot money from a sudden change in the market by interests who have the power to manipulate it behind the scenes. When you hold physical silver you know you have something of intrinsic value in everyday applications, and has been mutually agreed upon as real money by hundreds of nations over thousands of years. They can toy with the price of silver in the paper market because soon or later it will become evident that the price does not reflect the true value of silver and we will see the holders of physical metal smile.
We can benefit from this type of market manipulation because you know the true value of silver is much higher and one day it must correct to meet equilibrium, as a law of nature. Use manipulated dips, and natural dips a like to accumulate more physical. Think of this way- they are just making it cheaper for longer!