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  • tomg86402 tomg86402 Dec 27, 2011 10:17 AM Flag

    GLD/SLV doesn't have the goods

    If you and I have control of all 30 candy bars between us and these candy bars are held by a third party, and the guy down the street has no candy bars but thinks the price of candy bars will go down, he borrows 5 candy bars (sells short) from the third party knowing he must cover those candy bars in the future at an unknown future price. No new candy bars have been created. The 3rd party still has all 30 candy bars. The only thing created is a risk contract on the future price of candy bars.

    Naked shorting occurs when that guy from down the street borrows more then 30 candy bars from the 3rd party, or more candy bars are borrowed then exist, but this still does not create more candy bars, it just creates a bigger risk contract and a possible default situation.

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