Something very interesting occurred a few months ago: the spot price of silver dropped about a dollar an ounce. At the same time, spreads for physical silver, most particularly for 90% silver coin (1964 and earlier dimes, quarters and halves) increased by about a dollar an ounce. In other words, even though the spot price for silver dropped, the physical price remained constant.
We have seen this before. The reason is that the spot price reflects the projected price in the future and relates to projected mine output as well as the needs of the banking industry. Many banks hedge their accounts with gold and silver, but instead of using the actual metal, they often buy futures contracts. Futures contracts cost a fraction of actual metal, and incur no storage costs, so for banks, this can be a cost effective hedging method. When a contract runs out, banks typically sell them, and take the profit or loss, and then buy new contracts.
This works great if no delivery is required. However, if Dr. Ron Paul is correct, and weakness in currencies or the banking system sufficiently intensifies, the mad scramble to fill those contracts could force gold and silver to as of yet unseen heights.
It doesn’t appear this “doomsday” scenario is imminent, and I do not predict it. However, with all currencies no longer backed by metals, massive world wide quantitative easing debasing all currencies, and ever increasing governmental intrusion into banking and finance combined with the runaway potential of technologically driven trading, this kind of scenario has become potentially viable.
It therefore makes sense to hold at least some gold and silver physically—just in case.
PS - Meet me at the Las Vegas Coin Show on Friday, December 11th through Sunday the 13th. I'll be in booth number 1004 and I'm always happy to answer your questions, and take a look at your coins. We buy and sell at the Coin Shows. For a free pass, click the link http://www.ckshows.com/registration-winter.htm
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