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Are We Out of Cheap Silver?

By: Vincent Bressler

-- Posted 21 March, 2008 | | Discuss This Article - Comments:

While the price of silver in the futures market was falling by 17% this week, coin shops all over the country were running out of silver.   We are witnessing a disconnect between the financial markets and reality.  In the financial markets, the silver shorts hold all the cards:  1) They have a virtually unlimited check book from the FED  2) They can influence the futures exchange to jack up margin requirements when the price is falling rapidly, but not when it is increasing rapidly  3)  They can changes the delivery and trading rules on the futures exchange.  The longs in the futures market have none of these advantages and they are being driven into bankruptcy by the shorts.  We are approaching the point where the only longs that still exist are those who intend to take delivery.  At this point the futures market becomes irrelevant.  People who went to their coin shops today were told that they have to pay now and can take delivery in two weeks.  I'm wondering if that delivery will ever happen at the low price quoted today.  The lower silver goes on the futures exchange, the less likely that the exchange or coin brokers will be able to deliver based on the phony COMEX silver price.

A futures contract in silver is becoming a financial asset with a tenuous connection to silver itself.  I expect that the price that you have to pay for silver at your local coin dealer is about to start moving up up and away from the futures market price for the next delivery month.  In fact this is already starting to happen.   The next delivery month on COMEX is May.  It is entirely possible that we will see a run on the COMEX silver supply in May and a default if enough longs decide to take delivery.  More likely, under this circumstance, COMEX will simply change rules and enable payout of long contracts in dollars.  Either way it will be the end of the futures market as a price discovery mechanism for silver and the end of cheap silver.

Vincent Bressler
-- Posted 21 March, 2008 | | Discuss This Article - Comments:

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