Market Curiosity: Exploring Markets And Systems

February 19, 2011

Silver backwardation growing even as price rises: speculative targets based on 2008 LBMA backwardation: $37-42

Filed under: Just Watching — Tags: , , , , , , — Jeff Fitzmyers @ 1:20 pm

Dec 2008 LBMA backwardation:
+ Initial partial backwardation for 13 days.
+ Then no backwardation for 16 days. (rest?)
+ Then primary backwardation for 46 days.
+ The primary backwardation included full backwardation of 11 days with a max depth of -0.182 in the middle of the 11 days. Silver was up 5.6% at that point.
+ Price rose a total of 27% during the primary backwardation, including 14 days after the 12 month SIFO exited backwardation.

January 2011 LBMA backwardation:
+ Initial partial backwardation for 8 days.
+ Then no backwardation for 6 days. (rest?)
+ Then primary(?) backwardation for 22 days so far.
+ The primary backwardation includes full backwardation of 6 days with a max depth of -0.386 so far. IF 2011 is a fractal of 2008, one could construe the current backwardation to be a higher frequency and amplitude. So far, there is 60% more price appreciation to date than 2008.
+ Price has risen 9% so far during the this (speculative) “primary backwardation”. A 27% rise implies $37/oz.
+ 27% + 60% more = 43% = $42/oz.

+ 2008’s 12 month SIFO line was above the all other months most of the time. Yet 2011’s 12 month SIFO line has been AT OR BELOW ALL OTHER MONTHS FOR THE PAST 6 DAYS.
+ Backwardation is occurring even though price is around 150% higher than 2008.

LBMA’s full SIFO history:

We have sold everything we can produce in silver and have demand for at least twice that volume,” said David Madge, head of bullion sales at the Royal Canadian Mint

Now the COMEX is officially in full backwardation. (Before it was partial.) Near term silver is 72 cents cheaper than far term silver. Backwardation is growing more pronounced despite rising prices.

Ed Steer: On top of Friday’s preliminary open interest surprise, was another. The March open interest is still astronomically high at 53,090 contracts…with no sign whatsoever of any kind of liquidation. Time is running short to roll out of this contract…and my mind just won’t wrap itself around the possibility [at least at the moment] that a huge chunk of these contracts might stand for delivery on February 28th.

SIlver settlement prices.

Gold Silver ratio (of above ground metal) heading back toward about 15 to 1 which would put silver at about $90/oz with gold at about $1,400/oz. Except there are not 15 ounces for every 1 ounce of gold.(scroll down for chart) Most silver is apparently used and now scattered in landfills. There are now supposedly only 0.2 ounces of silver for each ounce of gold. That would put silver at $7,000 with gold at $1,400/oz. Robert Kiyosaki mentions $6,000 silver.

+ Silver backwardation continues: observations and speculations
+ COMEX silver settlement prices
+ Ed Steer and Ted Butler support the idea that it was bullion banks covering shorts not miners hedging

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