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Physical Silver Surges To Record 30% Premium Over Spot, In Backwardation
One of the main reasons why we have been not so focused on paper representations of real currencies (i.e., gold and silver) is that ever since the MF Global debacle, in which it became all too clear that if physical gold can be "hypothecated" via conflicting ownership, then there is no way that paper versions of precious metals are viable and indeed credible. After all, the only real owner at the end of the day is the certificate holder, which as we have explained before, is none other than DTCC's Cede & Co. Good luck collecting when the daisy chain of counterparties starts falling. Which leaves physical. And for a good sense of what the "real" price of the metal is, not one determined by institutions whose interest it is to preserve the hegemony of paper, one can either try to procure gold and silver at a retail merchant, or one can look to the premium of a dedicated physical ETF over spot. Such as Eric Sprott's PSLV which as of today is trading at an all time high premium of 30%! In other words, someone is willing to pay up to 30% over spot for the right to be closer to the physical metal than merely have a paper claim on a paper claim (pre hyper rehypothecation and what not). Incidentally the last NAV premium over spot record was back in April 2011 just as silver went parabolic and the entire commodity complex experienced the infamous May 1 takedown when it collapsed by $8 dollars in milliseconds on glaringly obvious coordinated intervention. Said otherwise, like back then, so now there is an actual shortage, manifesting itself in the premium. And while last time its was the price plunge which eased supply needs, we are not so sure how one will be able to spin a collapse of the current, far lower paper silver price.
But wait, there's more: As Keith Weiner explains below, silver also happens to be in backwardation. While we have covered the topic before, here is Keith with his explanation of what this means, although for those who like the punchline here it is, as above: shortage.
The Arbitrageur: Silver In Backwardation
March silver has been flirting with backwardation since the end of 2011, and today it has moved more firmly into backwardated territory. This is extremely bullish for silver, and let me explain why.
Backwardation means (and I am oversimplifying a bit here) that a futures contract is cheaper than buying the physical good in the cash market. To understand the meaning of this, the first question is this: Is it possible to warehouse the good? If not, then the futures market is simply the market’s opinion of what the price is likely to be on the contract expiration.
Silver, unlike interest rate futures for example, can be warehoused. This means it is possible to simultaneously buy physical silver in the spot market and sell a future in the futures market. One has no net exposure to the price. One is exposed only to the spread. This is a simple arbitrage. One can “carry” a good (buy spot, sell future).
The possibility of this and other arbitrages in a good that can be warehoused changes the whole structure of the futures market. One cannot look at the price of March silver as a prediction of the March price. Absent a shortage or other anomaly, the March price should be close to the spot price + the cost of carry (interest rate and storage). March silver should be at a slight premium to spot silver. This condition is normal, and it is called “contango“.
But that is not the case for March silver (or Jul 2013 and beyond). Those contracts are priced too low for anyone to make any money carrying silver. Instead, it would be profitable to de-carry silver. See the graph for a picture of the basis (the annualized profit one would make to carry) and the cobasis (the profit to de-carry). The basis is negative and falling; the cobasis is positive and rising.
A de-carry is the inverse of a carry. One simultaneously sells silver, and buys a future against it. Silver (and gold) are unlike all other commodities in that the above-ground inventories are massive, compared to annual mine production. Whereas in wheat, for example, there is a genuine shortage before the harvest. If one wants to buy wheat two weeks prior, one must pay a large premium compared to the first contract settled after the harvest.
In a normal commodity, backwardation means shortage. The backwardation develops because no one has any of the physical good. So they cannot decarry it, and thus the spot-future spread can go deeper and deeper into backwardation.
But in gold and silver it means something else entirely. People have the metal. But for whatever reason(s), they choose not to take this free money. In the silver market right now, trust is in short supply. In the past (think fall 2010 through spring 2011), this has been resolved by sharply rising prices which coax fresh metal out of hiding.
Originally appearing at The Daily Capitalist
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one time I called Tulving and Hannes answered the phone and the guy was drunk!, it was like 10pm eastern time=7pm for California. Hannes couldn't even talk, then he told me that he was not takiing any more orders, and I replay why...the guy said to me "you know what, fuck you"! and cut me off. Some salsa music came from the other side of the phone too..that was some crazy shit with Tulving.
Thats a fair criticism, since at 30 it means you need to have 300 thousand in PSLV for complete freedom of action, such as retreiving it.
It has to do with costs involved in moving relatively small amounts around imho. Its kept at the Royal Canadian Mint, in their vaults, in ottawa canada, Sprott rents the vault space from them, I think you should be able to hold and retrieve smaller amounts, maybe pay them a couple hundred dollars for the inconvenience. It would broaden his market.
Mar ( BASIS) < Mar ( cobasis) any questions?
holy shit ,,,,,,,,just buy phis silver
Can anyone explain why the basis and cobasis chart isn't perfectly symetrical, given they're the inverse of each other?
It's safe to assume, the charts are 5%/-5%. I trust tyler. Have fun counting ( symetrical) Micro grams.
I see ( Y)our point though.
I hope you had some Merry Holy days Yen. "200 day MA..." (!)
I have a yen for your acumen, again. Y'ken?
friday evening,anyone who want one cold pilsner,press the green button,i deliver immediately with my big,SILVER ,beer holder :)
Bluntly speaking, you have a high value beer holder, my friend.
The premium for PSLV is meaningless. One can buy CEF today for almost no premium and it holds physical gold and silver in roughly equal amounts. The premium for PSLV is simply an indicator of Sprott's marketing success and nothing more.
Spot is $29.52CAD and I can get a 1oz bar at Scotia Bank for $33.59CAD. That’s about 14% over spot but I have to pay a small admin and shipping. That wouldn’t bring it anywhere near 30%. I would have to take care of storage. What's funny is that the people I deal with at Scotia Bank don't have a clue what's going on. The last time I bought a couple of sleaves of coins they admitted that they opened them up to look because they had never seen 1 oz silver coins before.
The Grizzlies I bought a month ago are now sold out. So are 100oz Scotia bars.
http://www.scotiamocatta.com/eStore/index.htm
Typical mark up's for my suppliers.
8% over for ASE's,same for Mapes, Phils, 10 oz Generic Bars,4.4%
1oz Generic Buffalos 4.4%,a tad under 2% for 100oz Generic Bars.
Maybe 3%, 100 oz,for JM/Englehards.
There have a hell of a lot more they will sell me at those prices,than I ever dreamt of having the funds to purchase.
Subject to change of course...........
I have sprott pslv held in my RRSp's (like 401k's ) .I also have maples and much prefer the actual metal in hand. I just see pslv as another way to take silver off the market.Yes there is a premium , but i dont have the tax premium of 50 % if i crack open my rrsp's and buy the physical.
Boy, the trolls are really howling at the moon tonight. Smells like...fear.
Anyone who has a producing farm, no matter how small, is wealthy - other than that, it's all a crap shoot - PM's included... just sayin'...
Suuuuuuuuuure it is.
Ya it is.
Also having a portable sawmill, horses, cattle, hay, old school equipment, hay rake, cutter, generator's, water well, skill's such as knowing how to cut tree's for mill, not many true old school log cutter's left after NAFTA, brew kit and supplies, ammo, silver, gold, stored food, green house. Then just stay alive if shtf.
Now say sure it is....................
The only reason the price is what it is, is BECAUSE of the 'paper' price. And its LEVERAGED. WTF do you NOT understand?? If TSHTF paper prices will PLUUUUUUUUUUUUUUUUUUUUUUUUUUNGE and NO ONE will want to buy your silver unless they can (somehow) make a profit on it which MEANS they will be buying WELLLL BELOW 'spot', IF AT ALL. Counterparty Risk is a BITCH!!!
Silver is like fucking Elmo dolls, good luck SELLING one
Here is what you REALLY can BUY it for:
502.11 oz A-Mark Silver Bar .999+ Fine
502.11 oz A-Mark Silver Bar .999+ Fine Only $0.79 per oz over spot!
As for what you can sell it for?? Whatever amount UNDER SPOT they can get it from you for figuring in a minimum profit of AT LEAST 10%.
When the bottom falls out, like if Silver falls to 20 and then lets just say to $15.00, there will be NO PHYSICAL BUYERS for more than $10.00/OZ! !!! ! !!! ! ! !! ! !
I prefer the premium on amazon and groupon and linkedin and pandora.
Dude, you fucked up.. You already posted that with your other i.d. Give it a break, you are tired, go home.
the fuck are you going to do with a 500oz. silver bar?!
i have 18 of the particular bars to which i think you are referring , and they are a thousand ounces not 500. thats 62 pounds to you.
you get a young friend who lifts , go to your destinations, then you kill him nothing to it.
actually shitbag, you dont. They are 500oz.
actually shit bag, you are dead wrong, they are 1000... thats 62 pounds to you too, try lifting one
bill1102inf
Std LGBW GOOD bar weight is 1000+/-oz.
If Amark is selling 500oz bars, they are likely their own brand.(Which is nothing new)
10oz-32oz-100oz-1000oz are the stds.
funny.
jomama
Same thing you do with a 1000oz bar, ACCUMULATE.
The sqeese in silver is already on.
Backwardation, big boys buying strait from
the producers,money printing everywhere
around the globe,country's around the world
getting hammerd by the cartel(Europe,Iran)
record sales at the mints,increasing industrial
demand.
With a discount of 40 % from it's 1980 high
wat is not to like about silver.
BTW gold has done extremly well if measured
in euro 2011.
Silver is the best conductor of electricity (easy win on a bar bet, everybody seems to think gold); without regard to that as a practical matter it's just not a factor of substitution with cheaper material, in many cases there is _no substitute_.
For this reason, those in the industry call it the "indispensable metal".
Having lived long enough to be able to distinguish my gut feelings from random neuron firings, sold one of my 100oz Engelhards at $48, and used a little of the proceeds for bills and such. On Thursday last converted the last of it into two $20 US double eagles at $1600 ea. The problem with selling at this point is there are few good alternatives, since everything turned out to be a house of cards.
So the extreme swings don't bother me - sell into strength, buy on the dips, though hold enough where it kinda scares ya, and then some.
I keep telling my high tech friends to use Ag as a hedge. I'm horrified by how many of them have their jobs in tech, and all of their investments in ... um ... tech. Uh-oh.
Sell those silly high-tech stocks and buy silver. This is called hedging. If the world goes on more or less as it is today, (1) I'll eat my hat, and (2) you'll still have your lucrative high tech job. ( And you won't lose money on your silver. )
And if the fewmets hit the windmill, that silver will be worth a lot of groceries. In that world, if it comes, people will need something to use as money. And it won't be pictures of dead presidents, printed by a cartel of psychopathic reptiles.
HFT ain't good for me. CDS's gonna make some messes. TBTF gonna fall off a cliff. Wall Street is dead meat. Banks so bold layin' dead and cold. Gonna be prepper people, and the rest of the Sheeple. God bless this mess. I'm a poet, and didn't know it.
Thank BIG BUSINESS and their little brother WALL STREET for lobbying for the opportunity to run the baseball bat up the collective asses of the "American People" every politician talks about. Politicians are wannabe businessmen - but with no talent, and no capital, and no work ethic. They are what they are. Might's well get pissed at the raccoon that raids your trash cans. He is just doing what evolution gave him a job to do. Corporate World Co is your friend - NOT ! They run the show - every one else is cannon fodder at best, or a problem to be eradicated immediately at worst. The new religion of the millennia. Be careful, or you will be branded as a witch and burned at the stake. Actually, if you read or comment on this website, you are already doomed, 'cause the fluoride in your water, drugs and pesticides in your food, and poison in the air have not yet eliminated free will, or cognitive thinking, the ANTICHRIST of corporate religion.
Paper sucks, you Wall Street fucks! I'll see you vampires in the sun, with my loaded silver gun. Yer goin' down in flames, from Lower Manhattan to the Thames. Your paper is I know not where, I'd rather shit my underwear! For, be there bull, or be there bear, silver is the suit I wear! (With gratitude, and apologies to Dr. Seuss.)
The only paper I own is the stuff I wipe my ass with. Market paper is worthless, because I cannot do a good job of wiping my ass with it. Gold was worth $28.00 an ounce when I was a kid. Silver was worth whatever was printed on the coin you spent. Any one think those days are coming back? All of the lying bum fucking aristocracy of the Age Of Paper Power can burn in their paper suits soonest. I won't even bother pissing on them to put out the flames. I collect gold, silver, lead, copper, real dry powder, food, tools, diesel fuel, and other useful commodities. There is a community of folks all doing the same, so skill sets and extra eyes and hands can guard each others sixes, and "break on through to the other side, break on through to the other side, YEAH "
BONG RIPS FOR MISES!
All you little silver hording trolls remind me of people who collected 'garbage pale kids'.
you just dated yourself, sparky.
Why do you assume we are all "little"?
I would better be defined as a big troll prepared and capable of self preservation.
You?
Either you Gist or you Zeitgeist, depending on how old you are.
The Gist of the thing is more eloquent and hi brow able (raises
eyebrows). Gist goes well with Filet Mignon and Cabernet
Sauvignon, Zeitgist goes well with canned Salmon and a blushy
Zinfadel and some KY jelly.
If you meme you deserve to be de-memed.
PSLV is an acronym that probably means 'Physical SiLVer'
as opposed to hypotheicable silver, hypothetically.
Beware the marche of I's.
Don't know if this has been posted..Don't have fucking time to read all the metrosexual flamers who have no idea about?? Here ya go cunts..
Eric Sprott: "Expect The Gold To Silver Ratio To Hit Single Digits"
Submitted by Tyler Durden on 04/20/2011 10:40 -0400
http://www.zerohedge.com/article/eric-sprott-expect-gold-silver-ratio-hit-single-digits
Do me a favor trolls, fill out this Butthurt Report Form. These fucking stupidity posts are beyond belief. Go chart where the USD was at the height of Gold/Silver levels vs. where the USD is today. Yep, the Y/Y USD index is a wild ass horseshoe.
http://quotes.ino.com/chart/index.html?s=NYBOT_DX&t=&a=&w=&v=d12
Guess what that WH Muslim rat needs? More money from the proles to sell story book fables about The Ant and the Grasshopper…. USD debasing begins and what happens to the gold to silver ratio??
What way to ring in the new year with another Hitler parody?
/Rant off
Haven't got to say it for awhile ...... Silver Bitchez !!
http://www.financialsense.com/contributors/steve-angelo/2012/01/04/silver-sales-surpass-domestic-production
Holy crap, what a story! Now, only if our media were half this good.
http://www.aljazeera.com/indepth/opinion/2012/01/201211121441986655.html
http://www.youtube.com/watch?v=J2Mmk3uPwms
What shortage??? Kitco shows the last silver price at $28.85 and they are selling 1000 oz bars at $29.30/oz and 100 oz bars at $30.60/oz. The CME shows their silver stocks at 122,302,690 oz. This is the highest I have seen in many months. If I remember correctly, it was down around 95,000,000 sometime last year.
Yeah, big party all thanks to the CME!
Hubba hubba hubba, money money money! Who do ya trust?
http://www.youtube.com/watch?v=fvCQ8XgfMvM
Probably shouldn't have trusted the CME, as they are known liars, and utterly destroyed any credibility they had by claiming to have a hundred billion dollars to bail out clients if their brokers went under, then showing they didn't even hav 1.5% of that with MF Global.
collon88
Kitco being in Canada,how does one eat the extra freight, and come out?.
Online shipping is high :( Only worthwhile if you buy in volume.
Not sure what other online/street level stores in Canada are available for purchasing coin + bars... aside from Kitco, Sprott Money, and Scotia Mocatta. (I've only purchased from Scotia Mocatta, hear from these comments that people have used Kitco)
https://online.kitco.com/help/terms_and_conditions.html
Section 6.4. Shipping and Insurance
Shipping (6.4.1)
$30 flat rate, Canada or USA
Insurance (6.4.2) - Not sure if the "per $1000" is rounded up or down...
$4.00 per $1000 Gold, Platinum, Palladium, Rhodium
$7.50 per $1000 Silver
That's nothing. Even if that number isn't fudged that's about enough to supply the U.S. and Canadian mints for a couple more years at their current sales pace and they'll need it all since domestic mine production can't keep up. What happens when big money wants physical too? What happens when industry is fighting them for their share? More importantly what happens if nobody wants dollars or bonds? Today a small potatos US millionair RIGHT NOW could probably place a 10 milllion $ order for silver at Tulving and APMEX over a period of 5 business days and it would probably cause such a bottle neck and panic that it would send shock waves all the way back to the COMEX. Think about it. Not even a Carlos slim type. Just an average millionair could move this market. Maybe even break it wide open. If word got out that silver was quietly being ALL BID another millionair would follow then another. It take about 3 or 4 of them to cause an absolute panic. SILVER IS UNDER $29. The average household owes a share of $634,000 in US debt not to mention their own insolvent problems. Once people figure out the money math is not going to work what do you think will happen. We're all ready seeing the beginings of capital controls. Why do you think we are seeing record sales of bullion since Lehman? It's not going to stop.
Sprott PSLV
NAV = $11.16
Closing Price $14.74
Premium: 32.1%
Point is, barely any of the fools up above claiming to know shit about the COMEX, silver delivery's, or anyting related to commodities trading besides entering a 1lot on their etrade for SLV.
Talk to me about vol surfaces for a commodity and maybe then you'll be taken seriously. Never sat on a comm trading desk? Then STFU.
I think you're being junked because most people here don't regard the COMEX as legitimate, which at this point, probably is with good reason.
Trav-nasty is right about this one. This is an agregious display of statistical cherry-picking on the part of Tyler. He's basically doing the same kind of statistical analysis that the BLS uses to report things like inflation and labor. Bottom line is that there are any number of PM dealers offering silver at prices that reflect paper-spot; as frustrating and BS as I think that is.
Also, shouldn't Sprott be rectifying his premium by buying the silver so that the ratio of the amount of physical silver relative to the amount of shares issued arrives at a ratio that accurately reflects spot. This would lead to him buying and, therefore, taking more silver out of market and lead to higher spot prices vice his fund's premium to NAV. As it is, it seems to me he is inadvertently aiding any perceived price suppression scheme by 'protecting' his investors' premium to NAV by not buying silver.
All of these bullion bulls that run these funds are little more than money-changers on the right side of a trade that we agree with so we prop them up rather than seeing them for what they really are. Ben Davies, for instance, comes up with his magical prognostications on silver in late 2009, which probably had little more to do with anything other than his receiving a phone call from Sprott who let him know that he was about to make a big purchase. Since that time, his ability to predict price and/or call markets has been atrocious. These guys provide no real economic utility. They are money changers taking advantage of the money-printing activities of central governments. They're not adding any real wealth to any economy anywhere.
Has the arguing up above in the comments over the headline even necessary?
Do some in the silver circles consider Sprott as a bell weather? If so, then the declaration of a 30% premium probably considered a valid point. Albeit, the posting title would be better if it was a bit more clear - ie "Sprott's Physical Silver Surges ... " See how this backwardation works out.
I saw it yesterday afternoon and was going to jump out of my seat and say, "YESSSSSSSSSSSSSSS!! I'm in the Monaaaaayyyyyy!!!" Calm and prudence took over and I checked the spot price to confirm I was not up a few bucks.
There IS a delay in getting 100oz bars of ANY type from APMEX and this is rather unusual for them.
90% junk, one of the cheapest ways to own physical, is selling for $30.24 right now on APMEX ($500 face bags).
APMEX also has no more than 10 or 15 items of almost all forms their 90% silver coins in stock at present, and that's low.
Another way to check retail demand is looking at the number of auctions on eBay (a seller's market). As a seller, I have had buyers routinely paying 10 - 25% premiums.
Quick and dirty, yes, but these in some ways reflect the paper-physical disconnect.
>-<
As for supply, APMEX has a delay on almost ALL forms of 100oz bars, and low invesntory numbers on almost ALL 90% bags (as in less than 10 items in most cases)
Many reasons for low inventory but I havent seen that happen in awhile.
Ebay premiums and number of auctions still going strong. Over 25,000 auctions for ASEs at the moment. Say what you will about people who buya nd sell on eBay, these "mindless millions" are who you may be dealing with when SHTF.
Ebay will continue to be successful....it's not a "Seller's Market"...
It's a "Sucker's Market"
People in this country are predominantly "programmed" zombies...they will "clutch" fiat to their wheel-barrows...and then to their deaths.
Ebay is that "safe" place...that they believe is necessary when changing fiat into physical.
You know it's true....because you're one of the sellers....that buys from Apmex...or NWTM...or Tulving....or Provident...or Kitco...or Gainesville....or BD....or all the others. It's a long list of better options for people to choose from frather than Ebay.
I don't mean this as hate speech....the retail market sorts itself out....and obviously the "Sellers" are providing a service to a customer base that's fine with the high premiums put upon them by "middle-men/women".
I'm happy that they are at least getting some physical....though I do know of alot that have purchased the "snake-oil" alternatives with the "Clad" offerings. This is unfortunate...but proves my point...It's a "Suckers Market"....and people are driven and herded by their own fear to take it upon themselves and captain their ship more proficiently with some due diligence. I wish the "Clad" pieces were not allowed to be mixed in the same pages as the 999 offerings...it seems to me similar to the CFTC turning a blind eye to the over-concentration manipulation prevalent on the Comex Echange. Ebay must know people are getting "ripped off"....they copuld easily fix that problem. Right now it's comic relief when I hear the stories....but the other day I got a first hand account of someone getting takin' for a very large amount....it was notso funny...but rather sad.
I doubt I will ever deal with Ebay...my stack is built already....I speculate on price pullbacks playing on the volatility to make the stack bigger.
Ebay will continue on....but it's an ugly market IMO.
http://www.roadtoroota.com/public/633.cfm
ONE of the reasons folks are willing to pay those Premiums, is most smaller coin shops do not stock 90%(none in my area,large area), and most Dealers will not sell you any unless you buy a MINIMUM of $2-10k worth of product.
Be it Gld/SLvr, or and PM's.
So, their buying to either GET SOME,any, or are collectors and buy certain dated coins.(some folks cannot afford slabbed NGC/PCGS grades.
The Sellers are either (usually paying the freight, and insurance, and having to add that to the cost of the sales.Othewise, there would be few deals.)
What bothers me about eBay, is the majority of sellers are as a whole decent folks, but I am pissed when I see a jackleg advertising a coin MS 65, calling it BU UNcirc, and it's been handled a lot,and is not even in a any holder.
That's the suckers play.
Regarding the Daily Capitalist article criticizing this piece:
The Daily Capitalist (DoctoRx) seems to miss the point.
Key sentence from Tyler in this article: "In other words, someone is willing to pay up to 30% over spot for the right to be closer to the physical metal than merely have a paper claim on a paper claim (pre hyper rehypothecation and what not)."
The Sprott PSLV is not holding physical, but it gives a measure of what people are willing to pay to be closer to actually owning physical than MF Global "possession" of silver.
If people are willing to pay a 30% premium using the PSLV versus a certificate owned by Cede & Co. (DTCC), it gives a measure of the price strength (demand) for physical.
Do you trust Sprott to hold enough physical silver to back the ETF versus owning a certificate owned by DTCC? That is what makes a market.
Daily Capitalist article: http://dailycapitalist.com/2012/01/08/pslv-bulls-moving-into-deep-space-...
ZH Article on Backwardation (this one): http://www.zerohedge.com/news/physical-silver-surges-record-30-premium-o...
ZH Article on DTCC: http://zerohedge.blogspot.com/2009/06/biggest-financial-company-you-have...