I have to believe that the precious metals markets are practicing their own sort of fractional reserve system. Does anyone doubt that the markets (dealers, banks, etc) keep a small quantity on hand for physical transactions, but trade paper claims on much greater quantities?
A growing concern of mine which I haven’t seen addressed elsewhere: What will happen when the holders of paper claims run to court because they cannot obtain the physical metals the claims represent? Significant numbers of these claim holders are politically powerful. Will the courts decree a clawback of the physical metals from their present holders, and a redistribution of the those physical metals amongst the paper claim holders? The similarity to the clawback forced upon the “lucky” few who withdrew profits from Madoff’s pyramid scheme is disconcerting.
People holding physical precious metals would resist any clawback. Physical metals can be changed in form, hidden, traded or sold such as not be recognizable from when they were purchased. The tools to enforce the clawback would have to be truly menacing for most people to comply.
Please consider addressing the likelihood of a court ordered clawback of physical precious metals, and your evaluation on the lengths to which the system would go to enforce such a decree.
Thanks for your previous commentaries and time in evaluating this as a topic. – Andrew H. in Washington State