Understanding Gold and Silver
Written By: Brian Zinn | Posted: Wednesday, August 17th, 2011
Gold and silver over the past several years have for the most part moved in unison on any given day, either both going up, or both going down. You could count on several factors that all made sense for the yo-yo like ups and downs of these two shiny metals. The price of oil, the dollar price index, jewelry buying season, summer, Friday, QE1, QE2, Monday, the stock market, etc. Lots of reasons we can all use to understand the daily movements. Dollar price index goes up, the price of gold AND silver goes down, dollar price index goes down, the price of gold AND silver goes up. I get it, it's been that way for years, the question now is, why has gold been going up and silver down?
While there are probably other factors, I believe the key to this separation is being caused by the paper traders on the CME (Chicago Mercantile Exchange). The CME is one of the world's leading and most diverse derivatives marketplaces offering a wide range of futures and options trading including gold and silver. One contract for silver would be equivalent to 5,000 ounces and trades are made both buying and selling without enough physical silver available to fill all the orders should the buyers choose to have it delivered. There are basically two types of trades that can be made but in the simplest explanation one makes the trader a profit if silver goes up and the other makes a profit if silver goes down. Because new regulations have eliminated most of us from being able to make these trades due to asset and income restrictions this leaves mostly commercial and institutional buyers.
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