Each silver contract at the NYMEX is a promise. There are too many contracts, too many promises to deliver silver that may not exist. Each contract is for 5000 ounces. There are often over 200,000 contracts for 5000 ounces, that's a total of 1000 million ounces of silver promised to be delivered.
With recent market trends of defaults and bankruptcies, these contracts are at risk of default. Yet, the exchange has only about a third of that in real silver. How can they promise to deliver more silver than exists?
If they fail to deliver silver, then confidence in the world's entire financial system may collapse. Industrial users of silver may have to shut down their factories. To prevent this, users will bid silver prices much higher.
Due to the risk of default in silver Futures contracts, Jason Homel suggests that you avoid buying Futures contracts, avoid options, and avoid storing your silver with anyone else. Take delivery of your silver, and put your silver in your own safe.
Image: A worshipper touches the fourteen-pointed silver star embedded in the floor of the Grotto of the Church of the Nativity in the West Bank town of Bethlehem, which according to tradition marks the very spot where Jesus was born | Photograph: David Silverman/Getty Images
Also read: How rising prices affect you
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