Market Curiosity: Exploring Markets And Systems

January 22, 2011

Silver’s January backwardation out to 12 months, SIFO chart, implications

Filed under: Just Watching — Tags: , , , , — Jeff Fitzmyers @ 11:49 am

Here is correct the LBMA Silver Forwards terminology (I will fix past mistakes in past posts later today — sorry!)

Silver Forward Offered Mid-rate’s (SIFO) are [basically] the mid-rates (between bids and offers), at which dealers will lend gold on a swap basis against US dollars.

– Numbers less than zero = backwardation = despite warehouse and insurance costs, a near term commodity costs more than the future commodity: Demand for the commodity is high relative to future demand.
– When near month numbers > future month numbers = it costs more to lease silver.

Mr Turks mention that …silver is in backwardation for 12 months forward, an unprecedented development… is a mistake. The 12 month SIFO dipped below 0 for 11 days January 21 2009 to February 4 2009.

NYMEX silver futures are just barely in backwardation:

However Ted Butler noted: (Apparently some of the most significant moves happen on no news.)

On Wednesday, the Comex experience an epic event in the silver spread market. Let me state this clearly–the spread difference between the various trading months in Comex silver futures experienced the largest price changes in history. The price direction of the spreads was to relative price strength in the nearby months…and weakness in the more deferred months; a dramatic “tightening” of the spreads that may be a precursor to backwardation, or a premium developing on the nearby months. Let me by frank–I’m not sure what this monumental spread price move may mean at this point. There is no news from knowledgeable and trusted observers, just that the market changed.

Mr Turk silver comments today:
Lastly, the 0.5% drop in Comex silver Open Interest on Thursday pales in comparison to that day’s 4.6% decline in the silver price. The bear raid by the new silver shorts therefore did not dislodge enough longs, meaning these silver shorts have not covered their position. They are now vulnerable, so we are seeing the making of a possible short squeeze. Any strength this week in silver would I expect cause the shorts to run for cover, sending silver spiraling higher.

It’s not yet time time for me to go long my preferred silver vehicle SLW, but it’s getting closer. Silver Wheaton: A Double in Waiting?
By Dr. Steve Sjuggerud
The SLW:Silver ratio made a new low so it is unlikely silver has bottomed quite yet (if that indicator is accurate — don’t know yet). But a tradable low could be days away.

One target area for SLW is around 28-30. That would, close the gap, get to the 170 EMA that a weekly RSI > 70% projects and have A = C*1.6.

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