Silver in backwardation, set to move up

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Although the silver price has declined by 11% over the past three weeks, tightness in the physical market continues as the metal is again in backwardation, i.e. the spot price is higher than the futures price.

James Turk of GoldMoney provided the following comments to King World News: “Silver is in backwardation which is an extremely important development.  Backwardation happens regularly in most commodities, but it is rare in the precious metals.”

“Silver is in backwardation not just in the short-term, this time it is extending twelve months forward! The last time this happened Eric was in January of 2009. Over the next few weeks silver rose from about $10.50 to $14.50, a roughly a 40% move higher. The key to understanding backwardation is that the price must rise to entice holders of physical metal to sell and accept a national currency in return. I think we can expect a similar event to repeat over the next few weeks.

“A similar type of move would clearly put silver well above its previous high. What this backwardation shows is that there is a disconnect between the physical and the paper markets in silver. As I said previously, the silver shorts simply cannot hold the paper price down here any longer without seriously discrediting the paper silver market as a price discovery mechanism.”

Also, Goldcore alerted us to another positive development in the silver market, reporting a massive increase in silver bullion demand from China, with the country’s imports surging fourfold in 2010. As on so many other fronts, China is turning out to be a game changer.

Source: Goldcore, January 21, 2011.

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4 comments to Silver in backwardation, set to move up

  • deenie

    I guess I should be happy as I have a fair amount of silver on hand. But I do wonder what so many who have no job or prospects and certainly no discretionary funds to buy silver. My kids in particular are just scraping by and will be hit hard as the economy plunges into the abyss. We need to tar and feather Ben Bernanke and the Wall Street raiders. And the SEC too who just let it all happen. Worse, nothing much has changed. The games continue…

  • Lazane

    wall streets retardation, leads to silvers backwardation

  • Jay Newton-Thomas

    Take with a grain of salt. The fact is, nobody knows what is going to happen to silver, or anything else regarding our economy. I’ve been a subscriber to the Porter Stansberry newsletters for a few months now and everything they’ve advised has gone to shit. I bought their ‘sure bet’ Silver Wheaton at $39/share and within 2 weeks it was down to $29. Silver I bought just as it hit $30 with promises of it going to $50-$100 or more. It immediately tanked.

  • Robet Brunner

    Well silver trading websites stores are hurting as far as their silver inventory is concerned. Silver coins ( pre 1964 ) are selling on Ebay for over 25 times face value, so what does that tell you ? Don’t be foolish and purchase “paper” silver because that’s all it is >>> PAPER<<<.
    Avoid ETFs will all your soul.. silver is used by so many products and the demand is increasing at an alarming rate.

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