The real mystery is why do we even have a futures market in gold and silver? They're not consumed in the sense of wheat, corn, lumber, cotton etc. nor are they negotiable in the sense of bonds or currencies. So what are they doing there? Whose idea was that?

Not tough to answer that one. The futures market for PM's is no different than other commodities because like other commodities they are produced. There is a demand for them and consumption is irrelevant to the question of hedging.

As with all commodities some producers like the certainty of knowing their price prior to going through the cost/effort of production. Silver of course is very much consumed in industrial applications and gold in jewellry.

Why look at them differently? Where there are buyers and sellers each living in uncertainty it is good business to mitigate the risk of price fluctuation in order to better assure profitability whether a buyer or a seller.

OK, that's the standard explanation, but the fact that gold ISN'T consumed in the thermodynamic sense, means it can be lent back into the market and reappear as apparantly "natural" supply. Can't do that with corn...heh. It gets fed to the chickens.

What I'm doing is making the gold bugs case for them. I suggest the only reason we have a futures market in gold is to manage the price. However, having first set it up that way, it later took on a life of it's own. That is to say, highly leveraged players pushed the price beyond anything anticipated at the outset. How? By drawing in other leveraged players on the "shark smells blood" theory until the players vastly outnumbered the host - that is to say, the govts. lending gold into the market.

If you think about it, it's kind of like the bond vigilantes. They're long gone of course...LOL, but leveraged gold players appear to have taken their place, at least for now.

ebear