Market Curiosity: Exploring Markets And Systems

February 17, 2011

Silver backwardation continues: observations and speculations

Filed under: Just Watching — Tags: , , , , , — Jeff Fitzmyers @ 6:10 am

It costs Goldmoney 0.5% per year for storage fees. So at a minimum, silver contracts in 2015 should be at least 2% higher than the front month. But its not. Its trading at 1.3% lower! (Yesterday it was 1.8%.) Apparently entities really want silver pronto.

Zhou said there was also voracious demand for silver, with the bank selling about 13 tonnes of physical silver in January alone, compared with 33 tonnes in the whole of 2010.


± Significant backwardation on the 2 major silver exchanges indicates a tight market. (Copper on the COMEX too!)
± China (Sovereign wealth funds) etc. are buying baskets of GLD and SLV intent on delivery.
± 20 years of paper supply malinvestment with the pendulum now swinging toward non-paper demand.
± Musical chairs are being played now. Big Money wants to acquire without moving the tiny silver and small gold markets.
± Something small happens — the music stops, which makes a delivery fail, people get fired up in showy ways, and the race is on.
± For various reasons, March 23rd is a significant date in my silver view. Not sure if that is a turning point of acceleration point??

How high can silver go? How about $105/oz for starters. Coincidentally this is about double the old high, and when markets move to new all time highs, they tend to at least double. Also, note the possible timeframe. When silver broke out of the referenced consolidation area, the whole rise was over in just 2 months. Seems like the structure is different this time, but still something to be aware of.

Chris Weber, a very good longer term trader:

I’m telling you, I’ve watched the silver market for four decades in “real time” and much more than that in research, and I have never seen such strength… If silver goes over the old highs and keeps on going, this will mean the silver bull market is one of a strength so great as to make it a force of nature.

+ Very interesting development in COMEX backwardation
+ LBMA current stats
+ COMEX silver settlement prices

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