Silver in Backwardation. 30% premium on physical.

[theo]

A good article questioning the veracity of the paper silver price vs. physical.

http://www.zerohedge.com/news/physical- ... kwardation

Excerpt:

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).

Excerpt:

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.

[Chief]

If you can't hold it, you don't own it. I DO understand that money can be made with paper silver during the ups and downs, but if you believe that the US dollar is being inflated to pay off debts or the people in charge are just morons, long term physical Ag/Au is YOURS. Maybe it will be confiscated, but actual ounces of silver or gold should have more value/cost more than paper promises. My opinion, take it for what it is worth and it is worth what you paid for it, physical is far more attractive than paper and should carry a premium over paper. I'd rather have ounces of silver rather than I'd have hundred dollar bills rather than I'd have a number on a piece of paper/electronic "dollars". Like I said, just my opinion.

[Silver Addict]

why pay a 30% premium for sprott silver (it's still paper) when you can call up tulving (and most other large dealers) and buy SAE's for around 10% premium?

[barrytrot]

why pay a 30% premium for sprott silver (it's still paper) when you can call up tulving (and most other large dealers) and buy SAE's for around 10% premium?

I was thinking the same thing. And that 10% premium has been essentially static for quite some time. The only reason it's higher than it was a few months ago is that it doesn't move with the price of silver and silver is down.

As usual the articles written are meant to sensationalize. The article bears little actual useful information and is obviously written with the specific motive of creating fear in it's readers.


There is still as much silver as any common man could possibly buy out there for the same premium as always. No change whatsoever. (Please don't tell me about your LCS that has a higher premium. That's nice, don't buy from them. There is plenty of silver available via APMEX and Tulving and others at the same premium as always.)


And of course, Buenaderos even made a new year's resolution of selling silver below spot EVERY WEEK. Here is his latest as further proof http://realcent.org/viewtopic.php?f=28&t=10928

[68Camaro]

The article is definitely a bit sensational. And yes you can still buy silver - if you do even a little bit of homework - for spot + 10% or less (depending on quantity and form).

But, there also are definitely some signs of tightening. For the first time in recent history the major mints are creating more weight in just coin than their respective countries are pulling out of the ground. At some point this is going to affect price and supply.

And the plots often presented which appear to show more supply than demand are bogus, based on a bad equation and bad assumptions, which assumes that investment grade bar/coin is on the supply side and available for immediate reuse, rather than the demand side. Technically true, but as long as people are seeking intrinsic value that is portable and affordable, they won't be giving up their silver coin, so the "surplus" is bogus.

[camtender]

why pay a 30% premium for sprott silver (it's still paper) when you can call up tulving (and most other large dealers) and buy SAE's for around 10% premium?

I would guess that some of the premium is due to the nature of some investment vehicles, such as a self-directed 401(k), that make it much easier to invest in PSLV that physical silver. The better question may be why are people investing in PSLV with the 30% premium vs. SLV or CEF that are near spot. I don't know the answer to that..............

Also, I heard that PSLV and CEF trade like a close ended funds that have rising and decreasing premiums because of the static nature of the holdings.

We will see how long these games can be played.

Also, PSLV is now over 32% premium, here is Harvey Organs take for what it is worth.

http://harveyorgan.blogspot.com/

physical metal is starting to distance itself from paper.The bankers are loathe to attack the Sprott funds.
They are still shorting Central fund of Canada. Eric is still on the prowl looking for his silver.

I would also like to point out that Venezuela still has not received its gold from the Bank of England
I believe that the amount of gold coming from over there is around 99 tonnes.
Its first shipment came from other physical vaults and I do not believe that much came from the B. of E.
which is the key centre to watch.

[bigjohn56]

why pay a 30% premium for sprott silver (it's still paper) when you can call up tulving (and most other large dealers) and buy SAE's for around 10% premium?

And Tulving sells 1,000 ounce Comex deliverable JM bars for 29 cents over. The idea that anyone cares about the premium on this fund and that it somehow shows that silver is in short supply is laughable.

[68Camaro]

why pay a 30% premium for sprott silver (it's still paper) when you can call up tulving (and most other large dealers) and buy SAE's for around 10% premium?

And Tulving sells 1,000 ounce Comex deliverable JM bars for 29 cents over. The idea that anyone cares about the premium on this fund and that it somehow shows that silver is in short supply is laughable.

I think you should buy one and start your own BIG JOHN fund...

[68Camaro]

I would guess that some of the premium is due to the nature of some investment vehicles, such as a self-directed 401(k), that make it much easier to invest in PSLV that physical silver. The better question may be why are people investing in PSLV with the 30% premium vs. SLV or CEF that are near spot. I don't know the answer to that..............

Good question. I don't have the answer to it. I have both PSLV and PHYS at the moment (for the very reason you note, for my 401K) but they were bought when premiums were lower. The current premiums are almost unheard of. I have owned CEF in the past, and with CEF premiums being near zero, if I was buying more I would buy CEF - a great deal there!

Also, PSLV is now over 32% premium, here is Harvey Organs take for what it is worth.

http://harveyorgan.blogspot.com/

physical metal is starting to distance itself from paper.The bankers are loathe to attack the Sprott funds.
They are still shorting Central fund of Canada. Eric is still on the prowl looking for his silver.

Not sure why bankers are loathe to attack Sprott funds - doesn't makes sense to me - nor why they would be shorting CEF and not Sprott. But I could well be missing something critical.

[Jonflyfish]

An ETF trading at a premium to NAV is hardly a novel concept.
Spot, prompt and second forward are all trading without arbitrage.

Cheers!

[68Camaro]

Premiums are one thing. But PSLV is now trading at 2x its historical premium - a never before seen value. "The street" is pricing silver at $38/oz via PSLV, and it still rising (marketedly so today), while comex spot is stagnant at $29.

Why?

One theory being discussed - the only one that makes sense with the limited info I have, is that while oz, and hundreds of oz, even thousands of oz, of silver can be had at near comex spot - via that trickle-down distribution mechanism - if you want hundreds of thousands, or millions of ozs, and you want to be able to put your hands on it, see it, depend on it, know that it truly exists, then there are only a couple of sources of that. Otherwise the comex trading market is becoming perceived as bogus, paper, fiat silver. PSLV is one of those very few sources of real, dependable physical silver in large quantity. CEF has silver, but the problem with it is that it is 50% gold as well, and, if I'm not mistaken, can't be taken delivery of as physical (I haven't read the CEF rules in awhile).

[Jonflyfish]

Premiums are one thing. But PSLV is now trading at 2x its historical premium - a never before seen value. "The street" is pricing silver at $38/oz via PSLV, and it still rising (marketedly so today), while comex spot is stagnant at $29.

Why?

One theory being discussed - the only one that makes sense with the limited info I have, is that while oz, and hundreds of oz, even thousands of oz, of silver can be had at near comex spot - via that trickle-down distribution mechanism - if you want hundreds of thousands, or millions of ozs, and you want to be able to put your hands on it, see it, depend on it, know that it truly exists, then there are only a couple of sources of that. Otherwise the comex trading market is becoming perceived as bogus, paper, fiat silver. PSLV is one of those very few sources of real, dependable physical silver in large quantity. CEF has silver, but the problem with it is that it is 50% gold as well, and, if I'm not mistaken, can't be taken delivery of as physical (I haven't read the CEF rules in awhile).

People are free to believe what they want, of course. They can speak theory or truth. While COMEX is not an efficient means of procurement (fees, transportation, UOM etc) , nor was it intended for such, as a derivative market (check definition of "derivative"). One of my clients took delivery of several million ounces last month from both COMEX and the LBMA.

People can surmise that they know COMEX without any experience or flippantly label it as "bogus, irrelevant, paper, fiat, phoney etc" but that seems to work well for me since the proceeds from such it pays all my bills as well as all financial related transactions, including real estate, vehicles, food, and yes, even physical metal. You should have seen the pupils in the eyes of that dealer in Kansas dilate when I was stacking paper $100's in a clean out exchange for his metal. He couldn't seal the deal fast enough!

I urge anyone to explain why, if the COMEX as they say is so irrelevant, most dealers quote COMEX + diff in real time to determine spot. Kitco, APMEX, Tulving....
Anyone ever taken delivery of a few or several contracts from COMEX before? No surprise to those who have. I would urge any doubters to prove to themselves how bogus it is and take delivery of something reasonable, say 100 5k contracts and experience truth for yourself. It'll be more expensive than going through dealers (hence why it is not the procurement choice) and you'll have to deal with 1k oz bars but at least you'll know the truth about how relevant and real your "bogus fiat" will be spent!

Cheers!

[theo]

You've said several times that the COMEX system "seems to work well." A lot of systems work well. . . .until they don't. Bernie Madoff's investment scam worked well for over twenty years. His clients' investments grew and whenever they want to withdrawal a small amount of money, they could. But when the demands for withdrawal became too great everything collapsed. I don't claim to know anything, but I'm suspicious that the current COMEX system only works so long as most investors accept cash (and not metal) upon settlement. Why am I concerned? Because the COMEX is regulated and/or influenced by the government and our banking system, both of whom stand to benefit from suppressed commodity prices. THAT is a conflict of interest.

[pmbug]

The last time we saw futures backwardation and rising lease rates in silver was February 2011 - right before silver began it's run from ~$29/ozt to $49/ozt.

That was also the time that Sprott started buying silver for PSLV. The current rise in the premium to ~30% may signal that Sprott is going to start buying again according to the shelf filing for PSLV that was made recently (a month or so ago).

[Jonflyfish]

You've said several times that the COMEX system "seems to work well." A lot of systems work well. . . .until they don't. Bernie Madoff's investment scam worked well for over twenty years. His clients' investments grew and whenever they want to withdrawal a small amount of money, they could. But when the demands for withdrawal became too great everything collapsed. I don't claim to know anything, but I'm suspicious that the current COMEX system only works so long as most investors accept cash (and not metal) upon settlement. Why am I concerned? Because the COMEX appears is regulated and/or influenced by the government and our banking system, both of whom stand to benefit from suppressed commodity prices. THAT is a conflict of interest.

Well yes the COMEX not only "seems to work well", but it does and has always worked well. Bernie Madoff has nothing to do with it, just the same as Chinese wallboard used in homes built in Florida that had a peculiar odor, or tungsten filled gold bars. I think the misconception for most here who pledge allegiance to physical is that somehow the derivative market is supposed to function as a physical dealer. It is not, nor is it efficient. If I can settle contracts in New York for cash then pay Tulving for monster boxes I get what I want where I want it. The exchange, while offering physical delivery, does not. Plus there are several fees involved with pulling bars from a vault FOB afar and why use a futures contract for such? There are much better ways of forward pricing for delivery to satisfy procurement needs. And at any random point in time why would you choose comex as your procurement source and deal with the inflexibility, higher fees and basis issues? The answer might tell you why those who are looking for physical generally don't. You are better off calling the metals desk of a primary LBMA member. You can be suspicious, just like how the internet is a decent means of communication until a large scale EMP attack sends us all back into the caveman era.

At least consider what (derivatives) and why traders are trading there in the first place and what they are seeking- it aint metal like the nice folks here. My trades settled today just like they have for the last 19 years I've dealt there. There is no sense of panic or unusual activity in the market to suggest otherwise.

I still find it peculiar that so many folks here seem disgusted by a financial market, the very market that is used by the vast majority of dealers for real time pricing when dealing in physical transactions. I wonder if some here suspect that there might possibly be something to that..........

Cheers!

[Jonflyfish]

The last time we saw futures backwardation and rising lease rates in silver was February 2011 - right before silver began it's run from ~$29/ozt to $49/ozt.

That was also the time that Sprott started buying silver for PSLV. The current rise in the premium to ~30% may signal that Sprott is going to start buying again according to the shelf filing for PSLV that was made recently (a month or so ago).

I'm not discrediting the last runup. It was terrific. And I'm not saying the unknowable future doesn't mean prices can't go up just the same as a crash in prices. A single example of a market condition when something happened in the past does not make it a universal determinate of forward prices. In fact, current forward price curves DO NOT determine where prices will go in the future. And if it did, wouldn't that be the easiest most visible arbitrage? and to think the market couldn't recognize such and efficiently realize it. Some will say that the last runup was because they knew for certain that JPM was short a gazillion ounces and that a squeeze to the moon and beyond was coming, blasting past 50 straight to 100 the 200+ in a few short heartbeats but.....

Take it all with a grain of salt.
Cheers!

[68Camaro]

a) To re-state Theo's comment in my words. Ponzi schemes work brilliantly for those that aren't the last out. Clearly money can be made in them, by some, for a time. They are real, for awhile. They always work well, until they stop working. You don't want to be the last one looking for a chair when the music stops.

b) There is a misconception that some of us have misconceptions. No, I think mostly just a difference of opinion. I'm fine with that.

c) (to pmbug) Actually Sprott had already finished buying his first batch of silver well several months before the Feb 2011 run-up. Though perhaps the shortage of physical from that led to the run-up? Dunno. Not sure how one would find out.

[Jonflyfish]

Today's forward COMEX Month & Settle. No 30% backwardation seen and no forward curve backwardation to speak of at all just mild contango-

JAN 12 28.749
FEB 12 28.764
MAR 12 28.782
MAY 12 28.824
JLY 12 28.857
SEP 12 28.878
DEC 12 28.907

[Jonflyfish]

a) To re-state Theo's comment in my words. Ponzi schemes work brilliantly for those that aren't the last out. Clearly money can be made in them, by some, for a time. They are real, for awhile. They always work well, until they stop working. You don't want to be the last one looking for a chair when the music stops.

b) There is a misconception that some of us have misconceptions. No, I think mostly just a difference of opinion. I'm fine with that.

c) (to pmbug) Actually Sprott had already finished buying his first batch of silver well several months before the Feb 2011 run-up. Though perhaps the shortage of physical from that led to the run-up? Dunno. Not sure how one would find out.

a) I'm cool with that- especially since the COMEX is NOT a ponzi scheme. It is a marketplace, an auction clearinghouse.
You bid, I offer, the exchange matches and crosses = zero sum. Price changes, one account is debited and the other credited.

b) misconceptions can happen when people make assumptions about things that they don't have working knowledge about. I'm cool with that too.

c) Agree. There is no way to know and it wouldn't matter if we did. Truth in price.

Cheers!

[68Camaro]

Today's forward COMEX Month & Settle. No 30% backwardation seen and no forward curve backwardation to speak of at all just mild contango-

JAN 12 28.749
FEB 12 28.764
MAR 12 28.782
MAY 12 28.824
JLY 12 28.857
SEP 12 28.878
DEC 12 28.907

Looks "normal" or maybe "typical" is a better term, I agree.

But for some reason there is nearly $150M in extra value able to support PSLVs 22M toz at an equivalent value of >$38/toz. There may be other explanations, but I'm at a loss to explain it any other way. Premiums, sure. There has always been a premium in its short life ranging from 6-16%. I was suprised some months ago when it momentarily hit the low 20%s before it dropped back. Today it closed at 34% and climbing. That's off the chart.

[Jonflyfish]

Today's forward COMEX Month & Settle. No 30% backwardation seen and no forward curve backwardation to speak of at all just mild contango-

JAN 12 28.749
FEB 12 28.764
MAR 12 28.782
MAY 12 28.824
JLY 12 28.857
SEP 12 28.878
DEC 12 28.907

Looks "normal" or maybe "typical" is a better term, I agree.

But for some reason there is nearly $150M in extra value able to support PSLVs 22M toz at an equivalent value of >$38/toz. There may be other explanations, but I'm at a loss to explain it any other way. Premiums, sure. There has always been a premium in its short life ranging from 6-16%. I was suprised some months ago when it momentarily hit the low 20%s before it dropped back. Today it closed at 34% and climbing. That's off the chart.

A normal forward curve is contango. Backwardation would be unusual.
Agree about PSLV. It is an odd anomaly in the paper ponzi scheme. PSLV is a closed end fund and its shares has its own supply and demand, hence premiums and discounts to NAV but it is NOT the silver market. Nobody I know determines their silver dealing prices using PSLV.

Cheers!

[Jonflyfish]

I would like to help. Since they claim silver is trading at a 30% premium, I would be happy to offer physical generic rounds and bars at only 20% premium + shipping (>= 500 ounces = free shipping). Please contact me for your orders.
Cheers!

[68Camaro]

I would like to help. Since they claim silver is trading at a 30% premium, I would be happy to offer physical generic rounds and bars at only 20% premium + shipping (>= 500 ounces = free shipping). Please contact me for your orders.
Cheers!

If you can supply 50,000,000 oz at that price, Mr. Sprott may take you up on that. I think you can google his email address... Believe it's ir@sprott.com....

[Jonflyfish]

I would like to help. Since they claim silver is trading at a 30% premium, I would be happy to offer physical generic rounds and bars at only 20% premium + shipping (>= 500 ounces = free shipping). Please contact me for your orders.
Cheers!

If you can supply 50,000,000 oz at that price, Mr. Sprott may take you up on that. I think you can google his email address... Believe it's ir@sprott.com....

I think he is happy issuing ponzi shares at 30% over NAV. It's most profitable.

For anyone who believes silver is trading at a 30% premium, my offer stands. I want to help. Otherwise, posting that there is a 30% backwardation premium in the silver market is pure rubbish and sensationalism to feed those that hunger to read and believe such nonsense.

Cheers!

[68Camaro]

And Cheers to you as well, Jon...