Silver is enjoying another strong day. The spot price is up over 2.5% to $17.82 and has traded as high as $17.97.
Even though the price of silver has risen 16.73% over the past month, premiums to purchase physical silver remain extremely high.
A just-released YouTube video indicates that APMEX, a leading U.S. bullion dealer is currently charging at least $11 per ounce over spot price.
That’s a “premium” of more than 62% above spot. This has been discussed before in March when the “premiums” were even more extreme – as much as double the “official” price for paper 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.
With the “premiums” to purchase physical silver remaining extremely high – but volatile – arguably the physical market has now decoupled from the totally artificial market for paper silver.
If the paper silver price plunges in futures markets, the real market for silver ignores that move, i.e. the “premium” to buy real silver soars.
Price decoupling arrives in the silver market
When the price of silver rises in the paper market, the real market may (or may not) duplicate that move in percentage terms – i.e. the “premium” may or may not change. How is this not a separate, real-world price for silver?
If this is the “decoupling” that I warned was coming (as far back as 2013), what does this mean?
It means that irrespective of what happens to the paper price for silver, the real-world price for physical silver will continue going higher and higher.
How high?
Literally, the sky is the limit. Silver is arguably the most undervalued commodity on the planet.
It is a market that has been in permanent supply deficit for the past 30 years, i.e. there has been no (real) price discovery in the silver market for 30 years.
Over that time, the gold/silver price ratio has soared to astronomical and utterly absurd levels – at one point exceeding 125:1.
What is a realistic price ratio for gold and silver, today?
For 5,000 years, relative to supply humanity has had an equal preference for gold and silver.
$200 per ounce silver is an intermediate price target
Today, the mine supply ratio of silver to gold is 9:1. At a 9:1 price ratio, silver would be at almost $200 per ounce. Call that an intermediate price target for silver.
Hard assets are potent insurance against the extremely inflationary policies of the world’s inflation-addicted central bankers.
Physical silver currently represents an extraordinary investment opportunity under any circumstances.
This puts investors in the enviable position of being able to acquire financial insurance that pays you to hold it.
As price decoupling in the silver market intensifies, it is unlikely that the artificial paper price for silver can remain at a fraction of silver’s actual value.
More likely is that the paper market for silver will begin to follow the real-world market for physical silver. In other words, for the first time in 30+ years, we could be heading toward a world where the tail ceases to wag the dog.
It will no longer be bankers dictating the price of silver via the HFT trading algorithms in their paper silver market. Rather, it will be the price of silver freely moving in response to supply/demand fundamentals. Real price discovery.
