The real market value of gold and silver bullion is constantly being clouded by movement in the non-physical trade.

May 27, 2011 – The real market value of gold and silver bullion is constantly being clouded by movement in the non-physical trade. Consider Commerzbank analyst Carsten Fritsch’s comment in a Dow Jones Newswire: “Gold and silver are completely different stories at the moment, as can be seen in their diverging ETF holdings.”

What possible connection does the trade of giant paper funds have to do with the real value of gold and silver? Absolutely none. ETFs are investments run by pro traders. While their price initially is tied to a quantity of the metals, it quickly degrades to the status of any other equity. The only reason that they are worth mentioning at all is that they can give us cues about when to buy and sell.

So when iShares Silver Trust dumped over 11 million ounces of silver this week, the metal took a quick dip, but it lasted just one day. When SPDR Gold Trust gobbled up more than one half million ounces of gold in the same period, the price barely jiggled on its upward trend. In truth, gold and silver are exactly the same story today – they are a safe harbor for wealth.

The intrinsic value of gold has been remarkably constant over time. In the long run silver has been likewise, but the price is also driven significantly by surging demand that is not even close to being compensated by increased production. The point is that unlike ETFs physically held gold and silver are not meant to be treated as investments and their “performance” according to traditional measures is meaningless.

The investment game is about turning your wealth over to somebody else, who then pays you interest or dividends for the use of your capital according to the risk of losing that capital. Invariably the money that your money makes, however, is insufficient to keep pace with real inflation. When you cash in your investments they are very likely to be worth less in real terms then when you bought them.

Wealth stored in physical gold and silver, on the other hand, is real money, not connected to endangered currencies or subject to the discretions of any third party. When it is taken out of storage it will have the same value as the day it was stored.

That’s the way it is. That’s the way it has always been. And that is how it will always be. Prudent investors do not gamble everything – they always have a growing reserve of physically held gold and silver bullion to fall back on.

Shannon King

Senior Staff Writer –

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