Physical price disconnecting from spot?

[68Camaro]

A thread for comments on this thought...

Especially (at start of this) for silver.

This has been mentioned elsewhere that ebay coin prices may be starting to disconnect from spot.

I noticed today something quite remarkable. Prices for Sprott's PSLV for physical silver have started to disconnect from spot as well.

For as long as I've followed it, PSLV has been priced roughly at (SPOT - 3)/2, plus or minus a tenth at most, with any minor differences correcting eventually. Conversely, you take the price of PSLV and double it, then add 3, and you get spot price. Not today. Today that conversion is no long working. PSLV is priced 50 cents higher than it should be for the spot price of silver. Silver would have to be pushing 41 for this relation to still work; but spot is still below 40 as I write this.

(This hasn't happened with gold (yet). PHYS (physical gold) remains in line with the historical (SPOT - 220)/10.)

[adagirl]

Might be the calm before the storm? Maybe the below link has something to do with your observation????

I just read this today: http://www.numismaticnews.net/article/s ... id=2173371

[68Camaro]

Might be the calm before the storm? Maybe the below link has something to do with your observation????

I just read this today: http://www.numismaticnews.net/article/s ... id=2173371

That's a WOW article. Yes, this could be the unwinding of the end...

[Mossy]

'Bout time for them to split.

Yeah, that's some article. Whew.

[Sheikh_yer_Bu'Tay]

All I can say is: It's about damn time!

[68Camaro]

Today's open confirms the (at least for now) new formula for PSLV. It has changed (for the benefit of PSLV holders) from (SPOT - 3)/2 to (SPOT - 2)/2.

[silverflake]

Does anyone remember late 2008? The physical price of silver was about 40% higher than the spot quotes. Gold was higher too, but not as much as silver. AND I couldn't find any gold for sale at my usual haunts (APMEX etc.) other than high end numismatic pieces. That was when TSHTF and the U.S. banking system was on the verge of collapse. Keep your memories sharp, because anything can happen - It already did.

[68Camaro]

Does anyone remember late 2008? The physical price of silver was about 40% higher than the spot quotes. Gold was higher too, but not as much as silver. AND I couldn't find any gold for sale at my usual haunts (APMEX etc.) other than high end numismatic pieces. That was when TSHTF and the U.S. banking system was on the verge of collapse. Keep your memories sharp, because anything can happen - It already did.

At the time, in my relative ignorance, I attributed that (and heard this from others as well) to "coinage" prices. A premium for coins themselves. I didn't question it, too much, and didn't have much choice regardless. Over time that premium mostly died away as prices rose.

There was no shortage of product at the time, as I recall, but it all had an "accepted" premium then, which - I think - competition eroded.

I don't know if what is going on now is literally the same effect. I think some of it - but gut tells me there is more to this now. I think we are literally seeing both awareness of a pending shortage, and awareness that paper silver is crap.

PSLV is - this morning, continuing to go higher, while SPOT is going lower. No idea if this is going to continue, but at the moment there does not appear to be an accepted conversion equation. Even the formula I posted an hour ago is already wrong. I suspect people are fleeing from SLV and moving to PLSV, even if they take a conversion loss.

[silverflake]

68Camaro, thanks for your insight from 2008. At that time in 2008 (fall, into winter) , I found no shortage in silver (you just had to pay big premiums) but I definitely remember a shortage in gold, at least a brief shortage. I was always a buyer 1/10th and 1/4 ounce gold eagles and maple leafs (hey, I'm on a budget, you know) and had some trouble finding them. Shortly after, the U.S. mint ran out of silver, then the Canadian mint did to.

At one point, I was actually kind of scared and went to Welll-Fargo and bought some Swiss Francs (they were still trusted at the time). Ended up trading them in during spring 2009 (break even). It's funny, the girl they sent me to in order to make the Swiss Franc transaction was very pleasant and asked when I would be travelling to Switzerland. Without thinking I said that I wasn't traveling and that it had become difficult to buy gold in this difficult banking crisis. Sure enough, I got the sideways, funny look. Whatever.
Bottom line, keep buyng while you can.

[Mossy]

Sure enough, I got the sideways, funny look.

For most people, "It's just a job" and they don't track anything outside of their immediate task. They know nothing about factors that could close their employers and they need to go looking for work, so the pink slip is a total suprise. Heck, I know secretaries and clerks who barely find their way to the documents they are working on. They can only look at "recent documents" and open from there.

[68Camaro]

After some more due diligence I repeated the calculations used at the PSLV site so I could be sure I was following them...

http://www.sprottphysicalsilvertrust.com/NetAssetValue.aspx

It is clear that the PSLV premium (relative to SPOT) has hit a high water mark the last day. It has been as low as a few percent. But the premium has been rising over time (more or less). Average premium since inception looks like it has been around 15%, and the recent norm (last few months) has been 20%, but the last day or two it has gone up to 25%.

There is clearly a shift toward greater perceived value in physical.

[68Camaro]

So the above indicates that if SPOT is $40, people believe the real tradeable value of silver is currently $50.

In my dealings in silver I'm beginning to think that the valuation of PSLV has more meaning that the CME spot price.

A "real" silver price per toz based on PSLV is PSLV*2.58

[68Camaro]

In interest of full disclosure, there are apparently some people that think PSLV shouldn't have and doesn't deserve a high premium, and (for some reason) think that Sprott shouldn't be able to sell his personal shares when it does.

http://seekingalpha.com/article/295093- ... urce=yahoo

The question is, does Sprott really know something about a pending premium reset to a lower value, or is he just raising capital to buy undervalued items (miners) - which I think he should have a perfect right to do. Is the above blogger right, or is he just a cry-baby owner of SLV, wishing that he had physical instead of paper? Does this suggest that the premium will correct back to a much lower number? Or is something more fundamental going on with the market?

I don't know, but I'll be watching it.

[Cu Penny Hoarder]

IMO, this is not the time to hold ANY paper instruments: SLV, GLD, GG, AEM, AUY, SLW, PSLV, or anything else. If you can't touch it or hold it in your hand, you do NOT own it. When the huge SHTF market crash comes, these things will dump the same way they did in 2008. It's just not worth the risk.

Physical is the only way to go right now. I am taking about wealth preservation here, not hoping to ace a '10 bagger' gambling on paper gold and silver.

[68Camaro]

IMO, this is not the time to hold ANY paper instruments: SLV, GLD, GG, AEM, AUY, SLW, PSLV, or anything else. If you can't touch it or hold it in your hand, you do NOT own it. When the huge SHTF market crash comes, these things will dump the same way they did in 2008. It's just not worth the risk.

Physical is the only way to go right now. I am taking about wealth preservation here, not hoping to ace a '10 bagger' gambling on paper gold and silver.

There is a sense in which I agree. But, I cannot make the above blanket statement that you do, because there are real reasons to own instruments, and real reasons why some things cannot be invested in physical. And so here is one example of that - a key one. I do not really own anything in my 401K in that sense that I can't hold it, yet I must assign something to it because I do not yet have access to the funds. So I if I have to put that 401K in something I have chosen to trade in PSLV and PHYS. There is nothing illogical about that. If the economy tanks, yet the S does not completely HTF, then I will actually own something (even if it is up in Canada, in the RCM) physical.

(I also think it benefits you to have an appreciation for how the market is working (or not), even if you don't want to own any of it.)

[Mossy]

I do not really own anything in my 401K in that sense that I can't hold it, yet I must assign something to it because I do not yet have access to the funds.

I borrowed from my 401K and used a good bit for PM. Check it out, you might be able to borrow up to half of what you have in there, and what you pay and the interest both go back into the 401K.

[balz]

Forgive me if I look like a dumb, but I don't understand what is PSLV and its relation to the silver spot price. Anyone would care to explain this to me? Thanks!

[68Camaro]

I do not really own anything in my 401K in that sense that I can't hold it, yet I must assign something to it because I do not yet have access to the funds.

I borrowed from my 401K and used a good bit for PM. Check it out, you might be able to borrow up to half of what you have in there, and what you pay and the interest both go back into the 401K.

I can only borrow up to 50K, and already did that to pay off the last house so I could sell it, and they have a rule that locks me out for a period. I have almost a year left before I can dip back into that. But... good idea, for others that haven't.

[68Camaro]

Forgive me if I look like a dumb, but I don't understand what is PSLV and its relation to the silver spot price. Anyone would care to explain this to me? Thanks!

It's just a fund (look at the link above) - a Canadian fund - Sprott Physical Silver - which owns a bunch of bullion silver and sells out shares of it in units that are currently about 0.38 toz per unit. If you buy enough units and follow the rules, in theory you can actually go pick up the silver that you own. I'm sure there is a 1000 oz minimum, as they are all london good delivery bars.

[balz]

Forgive me if I look like a dumb, but I don't understand what is PSLV and its relation to the silver spot price. Anyone would care to explain this to me? Thanks!

It's just a fund (look at the link above) - a Canadian fund - Sprott Physical Silver - which owns a bunch of bullion silver and sells out shares of it in units that are currently about 0.38 toz per unit. If you buy enough units and follow the rules, in theory you can actually go pick up the silver that you own. I'm sure there is a 1000 oz minimum, as they are all london good delivery bars.

Thanks for the explanation. But I do not understand the link between that fund and the actual price.

If you guys are talking about higher demand for silver, shouldn't this reflect into spot price?

I'm a long time Ebay user and I believe the prices are very high right now, maybe abnormally high, but I don't know what all of this mean.

[68Camaro]

PSLV is - arguably - silver. They have something over 22,000,000 ounces in storage. Buy PSLV and you've bought some of those ounces. Currently those ounces are selling at a premium to the price of COMEX silver. PSLV was selling today for the equivalent of $49-50 per ounce.

Many argue - with a good story behind it - that COMEX silver - whether SLV or another fund or direct bullion itself - isn't properly backed. That for every ounce sold on the exchange that there is actually only a fraction of an ounce behind it which actually exists. That COMEX silver is only paper silver. A form of fiat, essentially. As such, one might argue that the price of it has been debased, so that physical silver - whether in a fund like PSLV, or CEF, or literally in hand or on ebay - actually can bring a higher price than spot. There may come a point in time where this is realized. I'm wondering if we are at or near that time.

Others will say that this a blip that will correct, a momentary imbalance. Only time will tell for sure.

[balz]

PSLV is - arguably - silver. They have something over 22,000,000 ounces in storage. Buy PSLV and you've bought some of those ounces. Currently those ounces are selling at a premium to the price of COMEX silver. PSLV was selling today for the equivalent of $49-50 per ounce.

Many argue - with a good story behind it - that COMEX silver - whether SLV or another fund or direct bullion itself - isn't properly backed. That for every ounce sold on the exchange that there is actually only a fraction of an ounce behind it which actually exists. That COMEX silver is only paper silver. A form of fiat, essentially. As such, one might argue that the price of it has been debased, so that physical silver - whether in a fund like PSLV, or CEF, or literally in hand or on ebay - actually can bring a higher price than spot. There may come a point in time where this is realized. I'm wondering if we are at or near that time.

Others will say that this a blip that will correct, a momentary imbalance. Only time will tell for sure.

Again, maybe I don't understand, but I see PSLV at 19.04 today, far from 50$!

[68Camaro]

See above. In rounded terms:

1 unit of PSLV buys 0.3878 toz of silver
1 toz of Silver = PSLV x 2.58
= 19.04 x 2.58
= $49.12

[balz]

Hmm... Is that 0.3878 some kind of a rule? I mean: is it always 0.3878?

[68Camaro]

Hmm... Is that 0.3878 some kind of a rule? I mean: is it always 0.3878?

No - it's just the number of ounces they own (just under 23M) divided by the number of units they've divided it into (something like 55M). If they issue more units and buy more silver at some point, both numbers could change.

Edit - not 55M, it's 58M. See the Sprott Silver link near the top of the thread.