The extreme levels of commodities such as gold and silver lately are 100% caused by speculators. Think of playing Blackjack in Lost Wages. The dealers (ie the commercials) do not determine the level of activity. You can walk into any casino in Vegas at ten in the morning and watch a bunch of bored dealers chatting and waiting for a bettor (the speculators) to show up. The speculators open contracts, all the commercials do is cover the contract by taking the opposite position. When speculators are bullish the open interest goes up. When they are bearish the open interest goes down. Bullion banks or banks of any sort do not determine either the trading level or open interest.

Speculators are members of the herd. They are most bullish at tops and most bearish at bottoms. They are the weak hands. You don’t need to know anything about commodities if you understand human behavior. And the interesting thing about commodities is that the commercials get stronger and stronger as extremes are reached and speculators get weaker and weaker as extremes are reached.

Probably the dumbest comment I have ever heard from someone writing about commodities appears lower in the piece. “So, if the Banks sell contracts with no metal backing, and those contracts are purchased by speculators with no end demand for physical, then what does the trading of these contracts have to do with the actual value of real, physical metal? The answer: NOTHING.

The Turd wants you to believe, in fact demands you believe, that the banks issue new contracts. They don’t. Speculators are solely responsible for open interest increasing. Commercials care about open interest about as much as dealers in Blackjack cause people to bet. They don’t.

If you are going to deal in derivatives or commodities on a US Exchange, you have to pass an exam called the Series 3 exam. In the mid-1980s I was a commodity broker. I took and passed the Series 3 and I suppose I could still apply for a job dealing in derivatives or commodities.

Clearly the Turd never took the exam or never passed it. There is no legal, moral or even logical reason for the seller of a commodity to have the ability to deliver or the buyer of a commodity have the ability to take delivery. Assuming there is a connection is a common mistake among the clueless who never traded commodities.

And I can prove it.

How many shares are ever delivered by the sellers of say, an S&P futures contract?

ZERO.

The futures contracts for the S&P or the Dow are entirely fictional. There are no shares ever delivered or demanded because the purpose of the contracts is not to exchange commodities. Commodity exchanges have existed for 5,000 years not primarily to exchange commodities but to serve to determine the correct price at any given time.

Consumers need to buy at the lowest prices, manufacturers or producers want to sell at the highest price and speculators provide the liquidity. It is not necessary for the commodity to even exist to determine the correct price.