The physical silver market is starting to fully decouple from the paper futures market for silver.
When does a purchasing “premium” simply become a separate and distinct price? For years, precious metals investors who have wanted to acquire physical silver have paid stiff premiums for the physical metal, generally at least 10% above the prevailing spot price.
This is clearly indicative of a metals market that is struggling to meet the physical demand. However, as the price of silver in the phony “paper” market has gotten pummeled to below US$13 per ounce, the price of physical silver at bullion dealers around North America has ceased following the paper price lower
This morning in Asia, when paper silver traded at $12.70, the cheapest price for any lot, smaller than 20 pieces, of current year 1-ounce Silver American Eagles was listed at Apmex at $24.91 per coin, basically a doubling of the paper price.
It’s not just the bullion dealers. Even our national mints are refusing to sell silver at the artificial paper prices. With the price of silver currently trading at US$12.48, the U.S. Mint is advertising U.S. Silver Eagles for “as low as $24.41”
. Nearly double the paper price
Why is the (paper) futures market for silver a phony market? Jeffrey Christian, founder of the CPM Group, dropped that bombshell in official testimony
to the Commodity Futures Trading Commission (CFTC) on the gold market, a decade ago.
There is not that much physical metal out there. There isn’t. But in the ‘physical’ market, as the market uses that term, there is much more than that. There is a hundred times what there is.
For every ounce of actual gold in circulation, there is 100 ounces of paper-called-gold being traded in futures markets. This trading is being conducted by traders who (according to Jeffrey Christian) don’t even comprehend the difference between paper and metal, since they refer to their paper gold trading as “physical” gold.
The silver market is even more heavily leveraged with paper, meaning even further divorced from the real world. Veteran precious metals commentator, Steve St. Angelo has estimated the paper ratio
in the silver futures market at 233:1.
While many precious metals investors realize the massive amount of paper trading leverage taking place in the gold market, they should see what is going on in the silver market. In a previous article
, I provided data showing that an amazing $9.8 trillion of notional gold paper trading took place on the world’s exchanges in 2016 versus $42 billion in actual physical gold investment. This was a paper to physical ratio of 233 to 1.
Much of this paper leverage has been used to artificially depress the price of silver. The permanent short position in the silver market is (in proportionate terms) roughly 80 times as large as the short position in the crude oil market.
The Big Banks call this massive shorting “hedging”. However, in real dollars the price of silver is currently hovering near a 600-year low. What are the bankers hedging against
, a 700-year low in prices?
It’s not like there is a shortage of demand. The silver market is in perpetual supply deficit.
This massive downward manipulation of silver prices has pushed the gold/silver ratio to an all-time extreme
. Today, the current ratio is 123:1
(US$1532 per ounce for gold, US$12.48 per ounce for silver).
Keep in mind that for over 4,000 years, the gold silver ratio gravitated closely around 15:1
. This reflects the supply ratio of the two metals in the Earth’s crust: 17:1. However, because of the gross under-pricing of silver today, silver is being mined at only a 9:1 ratio versus gold, according to Keith Neumeyer
, CEO of First Majestic Silver.
In North America, the extreme perversion of the price of (paper) silver in relation to silver market fundamentals has led to an actual decoupling of the physical market.
What comes after decoupling? A formal default in the global silver market
. If (when) that occurs, the price of silver will soar exponentially.
Warning: for investors thinking about acquiring physical silver at these rock-bottom prices, do it now
. We saw similar price action in the silver market during the Crash of ’08. And when silver prices were driven to their lows, there was virtually zero actual silver available to purchase…at official prices.
Coming soon: how this record gold/silver price ratio will trigger an avalanche of silver buying – from outside of North America.