http://www.silverseek.com/article/march-silver-backwardation
March Silver in Backwardation
Got silver?
March Silver in Backwardation
Got silver?
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Keith Weiner
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January 6, 2012 - 7:02am
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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. I am not going to discuss this case any further, as it is not that interesting and it is not germane to silver.
How much lower can sentiment go ?
Physical Silver Surges To Record 30% Premium Over Spot, In Backwardation
Watch Dr. Copper. When we demolish a structure, we salvage every gram of aluminum, copper, brass, steel, tin and cast iron. I assure you that prices for all of these metals is in terminal decline.
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On Friday, February 4, the spot price of silver closed on the COMEX at $29.075. The spot price was higher than almost every future month price all the way through to December 2015! Recently, the spot price of silver had traded higher than contracts up to a year in the future, but this may be the first time that spot silver has traded above future prices going out almost five years!
When the spot market price of silver is higher than future months, a condition called backwardation, this is a sign of a physical supply squeeze. For the spot price of silver to be higher than almost every month of future contracts is a signal of an extreme supply shortage.
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Turk continues:
“If this situation continues, and there is no reason to suspect that it is about to end quietly because the demand for physical silver is not abating, there are only two alternatives:
One, as we discussed on Friday, the silver price has to rise in order to dislodge physical metal from the strong hands that now own it. But why would anyone accept some national currency in exchange for physical silver unless the price is much, much higher?
Two, the shorts declare force majeure and use government force to let them escape from their untenable position. The fall-out from this outcome is very complex because there are so many factors to consider. But I would expect that any default would only strengthen the resolve of the strong hands now owning physical metal. Meaning that the market for physical silver would become even more tight than it is now, even if the price shoots higher as I expect.”
Turk also went on to make the following points:
“Look for a short squeeze in silver already underway as evidenced by the backwardation to intensify as we move toward silver option expiry at the end of this month, and silver delivery on March futures contracts in early March. In a short squeeze, what matters is ownership, not price. When you own physical metal, you are protected from government sanctioned force majeure that bails out the shorts.
As I mentioned Friday, the paper market for silver is losing its significance in the process of price discovery. Everyone who owns physical silver should make their decisions based on what is happening in the physical market, not the paper market.
A basic premise of precious metals is that silver leads gold, which is a point we have discussed before. It will be interesting to see whether the backwardation in silver will lead to a backwardation of gold. If it does, the end game for the US dollar is near. It would mean hyperinflation of the dollar is upon us.”
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http://kingworldnews.com/kingworldn...d_is_Great,_But_Silver_is_the_Next_Apple.htmlIf anything, the patten has now become stronger because silver is now testing support in the high 20s and looks like it is forming a double bottom. I still think this flag pattern will send silver to $70 in three months, once silver has broken out to the upside. Because it is a descending flag pattern, the breakout pattern has now moved down to $37.50, but $35 is the more important resistance level.
Once theses two levels are taken out, that three month move to $70 begins. So, as I see it, just keep accumulating physical silver here. The fundamentals for silver continue to remain very bullish and only time will tell if silver is the next Apple. I continue to expect that silver will go much higher and reach my $400 per ounce forecast....
To early too call. March futures settle in one week. We'll see what happens when contract roll over to the next month. Sometimes the front month just shifts in to backwardation shortly before futures expiry. I have no explanation for that.I suspect the recent rise in lease rates is a corroborating indicator here. "Brilliant" summer coming?
I suspect the recent rise in lease rates is a corroborating indicator here. "Brilliant" summer coming?
A trader at a tbtfb would do that. The only thing he cares about is his quarterly bonus.Well.. Recently it has been the case that price has risen to correct this issue. However, I do think there is a question of whether or not delivery of gold/silver will actually be made at settlement, so we might not have people doing the arb for that reason. Why would you sell physical to buy the contract? Gain 3% more paper but risk not getting your metal back?
A trader at a tbtfb would do that. The only thing he cares about is his quarterly bonus.
Most big banks offer unallocated pm accounts for customers which are backed by a fraction of physical. The traders of the banks use the customer assets to gamble, that's an on open secret. In some cases, this is even legal (e.g. in the UK) unless explicitly excluded by individual contract. So I guess this is almost certainly happening.Yeah but would the trader actually have any silver to sell?
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