Oh, yes, in that case. I didn't know if you meant to only speak out complex/structured products. Thanks for the clarification.
Well, what you describe is gambling. And, yes, some people do think those indicators are scientific. I agree with you, they are wrong. However, although that's the public perception of what professional traders do. It isn't, at all (I know). Even banks who tended to go for that voodoo approach at some point in history have canned most of their 'technical analysis' guys by now. It's the financial equivalent of astrology.
There's a difference between 'turnover' and 'contracts outstanding'. They are very different things. Turnover can be huge, but outstanding - which is the real 'held' will not in excess of the total stock of silver. Since the Hunt brothers people have become sensitive to that sort of thing. Not to mention that since those contracts are centrally cleared, that sort of thing can't happen. There are position limits and such in place.
High turnover is healthy. It means that people are able to hedge more often and more cheaply. Options have non-linearities in the payoff, which it sounds like you probably already know. Things like the gaofftopic cause the delta to change as the price moves. If the market is liquid the option holder can hedge with less friction. This reduces everyone's risk and it a net benefit to everyone.
Although individual people who like to 'play' the market in their spare time tend to think of options contracts as a 'bet' on the rise or fall. That's really not how they're used professionally, which is more than 99% of the volume. Options are contracts on volatility, which is why they need to be hedged with the underlying or another book. Professional traders don't want the delta risk, it's an annoyance, whereas individuals who do it in their spare time tend to see it as a good way to get big exposure for cheap and limit their risk (which it is, just remember you're paying for it with the theta! No such thing as a free lunch!)
You have to remember this second-order thing as well. If I'm a silver mining company and I have physical silver and I hold short contracts against that, the contracts outstanding will show a short position, but you have to add everything up. That's the trick. The market isn't a closed system. I think that point isn't obvious and it's the real barrier between what it is and the public perception.
Well, I have a lot of colleagues who are gold bugs as well, so you're in good company. They're very smart people. But, personally, I never understood it. It's no more 'real' money than anything else unless you're able to pay your taxes with it (which, as an interesting aside, is pretty much what defines a currency and gives it value.). Although that's not my real objection as there's a good point for the inflation hedging part of it.
My real problem with investing in physical commodities is that there's essentially a negative dividend yield as you have to pay for storage at some point, unless you're buying Krugerrands. But, then you probably should get a safe, and then you're paying for that and I imagine you'd want to have it insured - so that's storage costs as well. If you're not getting insurance, you're just speculating on the idiosyncratic risk component of the safety of your home, or storage space. Although, I suppose a bank safe deposit might be low cost all in, in that case.
In any case, with commodities, at best, you're getting a 0% yield + the market movement, and I'd seriously question if you have edge in predicting the market. It's nothing personal, it's just the same reason I don't pick stocks or otherwise speculate with my savings. Considering that there are people who dedicate their life full time to trading these things on those time frames; that's tough competition. I prefer to stick to what I'm good at.
Also, if the market seems 'crazy' that's a bad sign, because if something truly screwed up you bet the professionals would be all over it. (There's two lessons I teach to new traders without fail. One of them is, 'if you, at any point, don't understand what's going on. Stop trading! Wait until you have a handle again and then go back.') You could theorize some crazy collusion, but that's just not going to be the case. The benefits to a defector to the cartel are too high. Especially in this electronic, anonymous world. Back in the day where the other traders in the pit might kick the crap out of you, perhaps it was more possible. But, now you could defect in complete anonymity.
As for the CP-risk, if you're not holding physical, then you have no CP on the contract, but you still do with your brokerage. If you're in the UK that could be significant because of the lack of segregated funds. Also, if you're in the UK, I imagine you'd be dealing in CFDs because of the tax savings. But, that's CP risk with the house as well.
Re: the debt: that's simple. Governments are just like people, but worse. The median credit card debt to income is something like ~10%. Governments are worse because you get to charge that wide-screen LCD TV to everyone else in the neighborhood as well. Just too much spending. Completely unrelated to the market. The only way in which it is slightly related, in the US, is that the USD is effectively the world's reserve currency and so the US can borrow cheaper than anyone else. When something is too cheap, people tend to buy too much of it.
The Eurozone is a great example. Giving economies like Greece, Spain, and Portugal the ability to borrow at German yields is like giving Bill Gates' credit card to some club-kid who's spent his 25 years living it up and being shocked when it gets maxed out.