natsb88 wrote:I don't necessarily agree with the argument that premiums (private or otherwise) will shrink as spot rises. Higher spot means more working capital tied up, whether it be in material for manufacturers or in finished products for dealers, and more capital tied up in hedging. More working capital tied up means more expenses (interest) or more capital investments (more profit splitting).
Just look at gold. Nobody is out there making new 1 oz gold for $2 over spot like they are with silver, because it takes a whole lot more working capital to deal with gold. $20 - $50 over is much more common. So if companies want to make $2 on $35 silver, it would only be logical (in my mind) to want $3-$4 on $70 silver. The percentage will scale down somewhat, but the dollar value of the premium will go up.
Maybe the Mint can subsidize the increased costs of greater working capital since they have the US government behind them, but private industry can't double their working capital without incurring new expenses. And when you're working on margins as thin as the PM manufacturing and distribution industries are, those expenses are going to show up in the product price.
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