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If and when the Comex silver market implodes, so should the paper market for silver. Nevertheless, can this happen and will it happen?
Also, if a Comex default does occur, what are the likely scenarios and aftermath that will impact silver traders and the price of silver? The following sections explore the increasingly likely possibility of a Comex default in further detail.
Inability to Deliver Physical Silver
Perhaps the most likely scenario of a Comex “default” would involve the inability to deliver physical silver into its futures contracts due to a pronounced and protracted physical metal shortage.
In this case, those holding paper certificates instead of actual physical silver will probably be settled at the cash value of their position once the physical delivery problem finally comes to a head.
At this point, trading in silver futures on the Comex will probably also be halted temporarily while the market figures out the real price of physical silver.
Pricing Implications of a Comex Default
Of course, a Comex default of this type means that you will not be able to buy silver from the usual markets until the dust settles. Also, when said dust has finally found a resting place, silver will undoubtedly be priced much higher.
That is because the price of silver will be based on the actual amount of silver metal in circulation, rather than on the inflated amount of silver paper that has suddenly been turned into paper money instead.
Some of the silver pricing figures proposed are difficult to believe outside of a full dollar collapse (on the order of $500+/ounce), but seeing the price of silver more than double from where it is today would be trivial in a Comex default scenario.
Indeed, if silver’s price were only adjusted to the historical 17:1 pricing ratio with gold, then silver would be trading at roughly $100/ounce, which is basically triple the current price.
A Comex Default Would Help Discover the True Price of Silver
On a global basis, the value of money shrinks when compared to the actual value of silver metal. The discovered price of silver after a Comex default would therefore rise, but the key is that the result would be a more accurate and un-manipulated price based on the higher intrinsic value of physical silver. This is what the silver market currently lacks.
As silver analyst, Ted Butler, has pointed out for decades, by virtue of concentration, the paper metals futures market and OTC derivatives are currently being used to actively manipulate and interfere with the price discovery mechanism of silver and gold for profit, with the covert goal of suppressing precious metal price increases in U.S. Dollar terms.
Nevertheless, silver is much more strongly manipulated via this mechanism, so the presumption is that when actual price discovery happens, the market will see silver's price rise significantly. This is why long-term silver investors say that silver is on sale.
If and when a Comex default does happen, traders will also probably see at least one major bullion bank (J.P. Morgan Chase) require some sort of extraordinary support, which might be done covertly to avoid exposing the manipulators acting behind the scenes.
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