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jbh
5th June 2008, 16:40
OK, I've been putzing around the forum for a few weeks being annoying now. Funny, I wasn't so intellectually curious when I watched silver tack on 3 bucks to my cost basis. Now, well, now I am. There are some really great, enlightening posts here, so i figured I'd throw an arcane topic out there and see if you guys can help me.

I'd some reading on the Silver basis on the metro ride home today. The basis i now understand is the spread between the spot cash price and the closest futures price. When this sucker falls, as I understand it, its very bullish for silver. When we go into backwardation for any extended period of time and spot costs more than futures then the jig is up and no one's selling. My question is: Do any of y'all know where I can go to get historical charts of the silver basis? Do any of you have any silver basis-based indicators that you use? Does any body have a really great understanding of the basis and want to enlighten me and all of us.

I'm keeping my longs, but I'm all cash with new funds that come in until the market sorts itself out-- unless someone has some knowledge that can entice me to buy sooner.

silveraxis.com is what I've found so far.

JesterJay
5th June 2008, 17:08
If you got cash, buy physical silver and hold it til the price hits the "Oh my Gawd, Holy Crap, Man o' man am I glad I listened to Jay and bought Silver at $16.85/oz.!" range. I mean in the hundreds to one thousand plus dollars per ounce neighborhood. Nice neighborhood, too.
Read Theodore Butler:
http://www.butlerresearch.com/archive_free.html
Ted has been on the silver train for decades saying the same thing I just told you.
Time to be ALL IN!
JesterJay
PS. That silver basis stuff you ask about. Greek to me. Kind of like the charts "they" look at and find the double jack-knife backflip line with a descending rise in the upper lower end of the spectrum...blah whatever...means you should have macaroni and cheese for lunch tomorrow after hedging your hogs with silver tusk covers.
Just buy the dang silver and hold it until your smile bursts into a maniacle laugh of happiness.




OK, I've been putzing around the forum for a few weeks being annoying now. Funny, I wasn't so intellectually curious when I watched silver tack on 3 bucks to my cost basis. Now, well, now I am. There are some really great, enlightening posts here, so i figured I'd throw an arcane topic out there and see if you guys can help me.

I'd some reading on the Silver basis on the metro ride home today. The basis i now understand is the spread between the spot cash price and the closest futures price. When this sucker falls, as I understand it, its very bullish for silver. When we go into backwardation for any extended period of time and spot costs more than futures then the jig is up and no one's selling. My question is: Do any of y'all know where I can go to get historical charts of the silver basis? Do any of you have any silver basis-based indicators that you use? Does any body have a really great understanding of the basis and want to enlighten me and all of us.

I'm keeping my longs, but I'm all cash with new funds that come in until the market sorts itself out-- unless someone has some knowledge that can entice me to buy sooner.

silveraxis.com is what I've found so far.

jbh
5th June 2008, 17:32
:-D I have longs my friend. In many forms. In many geographies. I also have a wife- who hates being below cost basis and a child on the way. And for the meanwhile I need Fiat fraud to by food. I've been buying about 200 oz a month this year, so I'm plenty long. I just like to learn. This basis stuff is new to me. Its talked about a lot by Antal Fekete. I was just lookin' for some extry learnin'

J

nuslvrkwen
5th June 2008, 19:03
OK - stupid question - who's Antal Fekete?

When did you see spot quoted higher than futures prices? I have yet to see it this year. If the guy's day trading it would be easy to see something like this, but things don't stay that way long enough to be able to take advantage...

jbh
5th June 2008, 20:29
http://www.financialsense.com/editorials/fekete/2004/0503.html

The idea is that you watch the trend in basis, and if its shrinking, then its a sign that ready to move to market physical supplies are drying up---- I think. Still trying to wrap my head around it. The idea is that backwardation will fix itself, until it wont, I guess. Then all hell breaks lose. Fekete says inflation is not the indicator to watch, shrinking basis is. I'm just trying to see if there's an advantage to be gained here. Also, if there is, I was thinking about using Google trends analysis to see how many hits silveraxis.com is getting, since its one of the few search hits for "silver basis." This then would tell me if more people are watching, and could, I guess, in the right circumstances, be a forward indicator.

fansubs_ca
6th June 2008, 01:00
I remember seeing 2 articles on it:

http://www.kitco.com/ind/Fekete/jun052006.html

http://www.kitco.com/ind/Fekete/jun232006.html

Technically those were about Gold but they explain the priciple of basis
very well.

I was supprised to see my own city was the first place Gold futures were
traded when I read the second article.

jbh
6th June 2008, 05:20
yeah, I read those. I was hoping someone would know how to track basis or if any basis indicators have been developed. You know like how we have MACD and RSI and all that stuff for shares. Basis doesn't seem to be a very interesting topic to most. So I'm thinking if most of us aren't looking, maybe most of the monetary alchemist are and don't want us to. Maybe

Gino
6th June 2008, 06:55
http://www.silveraxis.com/img/basis.gif

Click the blue diamond thingy next to the daily basis measure (http://www.silveraxis.com/)

And for those interested in more on Professor Antal E. Fekete:
http://www.professorfekete.com/

Edit: Sorry, just realised that basis chart is not being maintained.

Gino
6th June 2008, 08:35
In fact, Professor Fekete has published an article (http://www.atimes.com/atimes/Global_Economy/JF07Dj04.html)today describing the situation of the concentrated short position in silver futures as a manifestation of the bullion banks trading the basis . . .

"They are trading the gold and silver basis (as opposed to trading the gold and silver price) continuously. This means that they are buying hedged metal when the basis is high, and selling it when the basis is low. This enables them to earn a steady income on their gold and silver reserves in gold and silver.

. . . The inordinate size of short interest in gold and silver is just the visible side of the hedges of bullion banks and others, the invisible side of which is their metallic reserves."

jbh
6th June 2008, 08:49
so does this mean to you that a shrinking basis should be a warning sign of potential downward price pressure due to increased selling/supply? how do you read it?

Gino
6th June 2008, 12:17
That's a great question and I'm glad you asked, because I have had some confusion over the significance of the metric and I need to get it clear.

Here's my synopsis on basis:

1)Basis = Futures Price – Spot Price;
2)Usually the basis is positive in precious metals and this is called contango;
3)In contango, if the basis is very large the commodity will be held in favour of selling it under a futures contract, because the futures price is significantly higher than the spot price;
4)Usually, in contango the basis is contained to the equivalent of the commodity's holding cost, so there is no incentive for stockpiling or selling future contracts;
5)Occasionally, the basis becomes negative and this is called backwardation;
6)In backwardation, the spot price is greater than the futures contract price, typically due to short-term supply constraints or unsustainable speculative demand, so it is more profitable to trade the commodity on the spot market;
7)Basis Risk exists in the potential for a divergence between spot and futures markets, most notably from the risk of a default in supply. With a fiat currency prone to inflation, a loss of faith in the currency could see it become valueless and unable to purchase the commodity at any price.

I do not trade in future contracts, so I doubt I really grasp the subtleties associated, but it appears to me that the risk is for a continuing and declining basis value that will indicate sellers no longer wish to exchange their silver for the currency the commodity is priced in. However, while monitoring for signs of enduring and deepening backwardation may give forward indication that it's time to get out of the futures market, that indication would only come due to a rapidly escalating Spot Price. So I don't see this as a leading indicator of the for the physical market.

I imagine that, in such a circumstance, signs of distress in the economy and the increasing price of silver would be so pronounced to the interested observer that you would already be an active contributor to the increased spot price.

So the way I see it, the only significance the basis has is in the trading of futures and since I'm not trading forward contracts, I think that a failure in the silver basis is no more than confirmation that I need to significantly revalue my PM holdings.

In the meantime I think there's a few more bucks in the bull before the US$ is annihilated.

nuslvrkwen
6th June 2008, 14:30
:p Thanks so much for this explanation! I'm interested in all the information Gino and you jbh know about this trend to watch. I DON'T trade futures either. But this explanation gave me insight as to how someone can be sucked into doing so to GROW wealth, when the fees involved in maintaining the trades would change the per oz price, and eat up the profits the traders were trying to make also. So the trader using this may not be making all that much money on the trades! Depending on how much paper trading the person's doing and timing - this tracking would be great information, but the actual TRADING would only make the trader see why they'd need to buy physical anyway!

Gino
6th June 2008, 19:02
Its an interesting topic to be sure, but there is a point here that Fekete is making that may need contemplating. That is, the sellers of futures contract are working their precious metal assets by trading on the futures exchange using the relative value of the PM basis as their guarentee for profit.

I don't think I really grasp how that works yet, but it would explain the dirth of charting information on the basis.

If anyone can explain, in simple terms how trading the basis can generate profits it would be appreciated. In simple terms! Like, you know, as if I am an idiot or something, who just can't grasp futures trading!

jbh
6th June 2008, 19:33
Gino, i'm with you. My wife wife has assigned me some chores tonight so I can't contemplate it until tomorrow. I feel like I'm back in college, actually thinking hard about something again. Your previous post, the lengthy one was helpful. I don't know maybe I'm over complicating it. And I don't think we, you and I, well at least I don't think I have enough capital or smarts to trade the basis. I can't even mess with futures. I was just hoping there would be a window into the world of the real players, so we could position ourselves accordingly, keeping the requisite powder dry for dips. Thanks for thinking this through with me, mate, I appreciate it!

jbh
7th June 2008, 06:56
how's this for timing: It appears we closed for the week with the silver market $.07 in backwardation. Cnn money lists the july contract at 17.43, while the spot bid looks to be 17.50 according to Kitco. (It doesn't appear that silveraxis does daily updates-- though I did e-mail the site owner asking for some 'splanin')

So I expect this situation would have to rectify itself on monday either with cash silver falling back below the July contract by 5 cents or so, or with the July contract catching up--- unless were entering the point where we stay in backwardation, which would means its time to short the markets (I think- and that nasty bozu break down would make that a very appealing prospect if the markets were actually free) and scoop up what PMs we can with available cash.

Also gold looked backward as well. This makes me thinking I may be missing something or that my thinking is off since gold almost never goes backward.

jbh
7th June 2008, 09:06
sorry I lied.

Spot: 17.5
July: 17.43
September: 17.5
January: 17.71

Still it seems odd that there's no spread between spot and July

Gino
7th June 2008, 09:13
I'm not sure if backwardation is present, my last check on kitcosilver showed:

Basis = 17.57 - 17.50 = 0.7 in contango;

based on July contract price published by the Dubai Futures Exchange.

But there is a great article published by Fekete called Keeping Our Eyes Peeled for the Gold and Silver Basis (http://www.professorfekete.com/articles/AEFKeepingOurEyesPeeled.pdf) in which he attempts to explain his analysis of the hedging and derivatives markets. While much of his discourse is beyond my experience, I felt I well understood his description of hedging against the US$ dollar . . .


It may appear that central banks have all the marbles. Indeed they do — except for one. They have foolishly let the most important marble slip through their fingers. That marble is the gold marble. The only wager against the dollar that has a chance of winning in the long run is the one staked out by the gold marble. Ironically, it is also the simplest, and anyone can play it, even people of modest means. That wager consists in scale-down purchases of physical gold. Buy on every dip of the gold price. Upon bigger dips, buy more. In doing so you may ignore all the indicators with the exception of the basis: the CPI, the dollar index, bond prices, foreign exchange rates, COT reports. You keep buying, and never sell. Your gold is fully paid for. It should be a source of infinite joy to give up worthless (well, make that ultimately worthless) paper against acquiring gold marbles.

The music stops when the basis turns permanently negative, heralding the curtain on the last contango in Washington. It tells the world that all offers to sell physical silver and gold have been withdrawn in the markets. The monetary metals are not for sale at any price. The game of musical chairs is up. Fear not: your gold marble has reserved a chair for you.

If personal misfortune overtakes before that happens, you still won’t sell. In an utmost emergency you borrow, but not sell. Remember, interest rates are kept at an artificially low level by the managers of the con-conundrum, offering you a gift.

Theirs is a gift that you may accept."

Gino
8th June 2008, 10:30
In my experiences purchasing bullion over recent months, I felt that the length of the supply delays were being caused, not from waiting for Comex bars to be delivered from exchanges, but for mines to deliver ore to the refineries to create new bullion. This was, in fact, confirmed to me on my last purchase when the bullion company advised that their refinery had now secured sources of ore for minting and were hoping to soon reduce their delivery times from 8 weeks back to 4. The ore was referred to as being in grains, I believe, and I did not think this of much significance until this recent discussion on the Silver Basis. The light just went on, so to speak.

If the supply of bullion for investment is dependent on the delivery of ore from the mines, what role does the commodities exchange play in the purchase of metals by the public?

As far as I can tell, the answer is just to set the price.

On my last purchase, I offered to pay more than the asking price to prioritise delivery (free market principles) and was told that they couldn’t do that because they weren’t that kind of business, it would cause confusion and they didn’t want to upset their major clients (price fixing).

So, if the price is being set outside of the supply/demand dynamic, can one rely upon the published figures to provide indicators of the state of the market, for instance, whether or not we are in contango or backwardation?

In determining the state of the market, are we to believe numbers derived from the trading of non-existent commodities rather than our actual experiential reality? How is one’s confidence and beliefs in the value of one’s assets in anyway derived from anonymous traders operating in a virtual-reality of computer based complexities? The answer is, only through an unreasonable belief in the integrity and relevance of “official” numbers.

I am wondering, given that the purchase of bullion is dependent on the delivery of ore from mines, if anyone is really selling their precious metals. The observable symptom of sustained backwardation is that PM owners refuse to sell. Irrespective of what we call it, is this not the situation when bullion for investor purchase must be supplied from freshly dug ore?

I feel the physical Silver market is most likely in backwardation right now and yet we don’t recognise it because we are relying on erroneous data to show it. I suggest investors in physical silver, as opposed to its derivatives, are not actually selling, but rather lining up to purchase the newly mined and minted product, consuming it as fast as it is being created.

This has certainly been my experience when trying to buy bullion, if it is yours as well, then deepening backwardation is very possibly the actual situation, contrary to what official numbers or governmental sources might wish people to believe.

Why these authorities may wish to distort the reality of the situation has been the subject of some discussion by commentators and is positioned well in this interesting article (http://www.financialsense.com/fsu/editorials/2008/0607.html)by Steven Kovaka at Financial Sense.

The Big Red 1
8th June 2008, 13:39
On my last purchase, I offered to pay more than the asking price to prioritise delivery (free market principles) and was told that they couldn’t do that because they weren’t that kind of business, it would cause confusion and they didn’t want to upset their major clients (price fixing).

Just out of curiosity, why would you offer to pay more for faster delivery? Assuming that delivery is guaranteed at a certain price, and you don't need the item ASAP. I would most always be willing to wait if it meant paying less assuming the above 3 conditions were true.

TBR1

FedFixNix
8th June 2008, 15:57
OK, I've been putzing around the forum for a few weeks being annoying now. Funny, I wasn't so intellectually curious when I watched silver tack on 3 bucks to my cost basis. Now, well, now I am. There are some really great, enlightening posts here, so i figured I'd throw an arcane topic out there and see if you guys can help me.

I'd some reading on the Silver basis on the metro ride home today. The basis i now understand is the spread between the spot cash price and the closest futures price. When this sucker falls, as I understand it, its very bullish for silver. When we go into backwardation for any extended period of time and spot costs more than futures then the jig is up and no one's selling. My question is: Do any of y'all know where I can go to get historical charts of the silver basis? Do any of you have any silver basis-based indicators that you use? Does any body have a really great understanding of the basis and want to enlighten me and all of us.

I'm keeping my longs, but I'm all cash with new funds that come in until the market sorts itself out-- unless someone has some knowledge that can entice me to buy sooner.

silveraxis.com is what I've found so far.

I am also intrigued by this basis analysis as a way to gauge PM investments. Fekete has some very solid arguments on this score, and on the world economic scene as a whole. But then so do others, many of whom differ with Fekete on certain issues.

For instance, I don't hear Fekete talking about the way money now (since 1913) comes into being, at interest, by central bankers (FRS) as being a key factor in the approaching US economic collapse. It is all the abandonment of the metallic standards, as I read him.

Admittedly, I have read only a small portion of his writings, and have attended none of his seminars... tho I'd like to give them try, if it were possible.

By my analysis, the separation of silver and gold from our monetary unit was only one of many causes of our current crisis. The biggest, by far, seems to me to be the transference of the sovereign power to create and regulate money from the US Government (we the people) to the central banking cabals in 1913. It is compound interest that is owed on every dollar created that is the cause of our irredeemable mountain of debt, and our current national insolvency (if not bankruptcy), coupled with the limitless printing and lending of new money into existence that is destabilizing (devaluing) the dollar.

So I think Fekete has some valuable insights, and should be studied. I have strong reservations about looking at him as a prophet or visionary.

The Federal Reserve System is what needs to be fixed or nixed, and money creation needs to be returned to the people, though a truly representative government.

Fedfixnix

Wright Patman, Chairman of the House Committee on Banking and Currency for over 16 years, said:

"I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money....I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with the Congress for sitting idly by and permitting such an idiotic system to continue.”

Gino
8th June 2008, 19:01
Just out of curiosity, why would you offer to pay more for faster delivery? Assuming that delivery is guaranteed at a certain price, and you don't need the item ASAP. I would most always be willing to wait if it meant paying less assuming the above 3 conditions were true.

TBR1

The short answer is a lot can happen in 2 months.

The slightly longer answer is I don't know that all your assumptions are true and a contract to deliver silver in two months sounds like I should be trading on the Comex. The difference between physical purhcase and trading a derivative is supposed to be the immediacy of supply. The fact that everyone is being forced into the futures market this way, implicately accepting the equivalence of a contract for the physical commodity is just another symptom of the disfunction that exists in the silver market .

The really significant question is, "Why must we all trade in contracts for future supply?"

There is only one logical answer to this question, that there is insufficient supply of the physical metal to meet demand. Which is what I have just been saying . . . no one is selling, we are all waiting for new product.

So, in conclusion, while we all might have an unreasonable, perhaps unhealthy, desire to believe in the implicit vitue of numbers published by authorities, I say these numbers and their associated indicators can not be trusted. I say that the price is being set outside of the supply demand dynamic of the physical commodity, as if there is 100 times the actual metal and as if supply is only constrained by the speed by which new contracts can be created. All in all, that just means it is a great time to buy before this situation is corrected.

FedFixNix
8th June 2008, 22:14
In my experiences purchasing bullion over recent months, I felt that the length of the supply delays were being caused, not from waiting for Comex bars to be delivered from exchanges, but for mines to deliver ore to the refineries to create new bullion. This was, in fact, confirmed to me on my last purchase when the bullion company advised that their refinery had now secured sources of ore for minting and were hoping to soon reduce their delivery times from 8 weeks back to 4. The ore was referred to as being in grains, I believe, and I did not think this of much significance until this recent discussion on the Silver Basis. The light just went on, so to speak.

If the supply of bullion for investment is dependent on the delivery of ore from the mines, what role does the commodities exchange play in the purchase of metals by the public?

As far as I can tell, the answer is just to set the price.

On my last purchase, I offered to pay more than the asking price to prioritise delivery (free market principles) and was told that they couldn’t do that because they weren’t that kind of business, it would cause confusion and they didn’t want to upset their major clients (price fixing).

So, if the price is being set outside of the supply/demand dynamic, can one rely upon the published figures to provide indicators of the state of the market, for instance, whether or not we are in contango or backwardation?

In determining the state of the market, are we to believe numbers derived from the trading of non-existent commodities rather than our actual experiential reality? How is one’s confidence and beliefs in the value of one’s assets in anyway derived from anonymous traders operating in a virtual-reality of computer based complexities? The answer is, only through an unreasonable belief in the integrity and relevance of “official” numbers.

I am wondering, given that the purchase of bullion is dependent on the delivery of ore from mines, if anyone is really selling their precious metals. The observable symptom of sustained backwardation is that PM owners refuse to sell. Irrespective of what we call it, is this not the situation when bullion for investor purchase must be supplied from freshly dug ore?

I feel the physical Silver market is most likely in backwardation right now and yet we don’t recognise it because we are relying on erroneous data to show it. I suggest investors in physical silver, as opposed to its derivatives, are not actually selling, but rather lining up to purchase the newly mined and minted product, consuming it as fast as it is being created.

This has certainly been my experience when trying to buy bullion, if it is yours as well, then deepening backwardation is very possibly the actual situation, contrary to what official numbers or governmental sources might wish people to believe.

Why these authorities may wish to distort the reality of the situation has been the subject of some discussion by commentators and is positioned well in this interesting article (http://www.financialsense.com/fsu/editorials/2008/0607.html)by Steven Kovaka at Financial Sense.

Gino, Your comments are very perceptive, as are Steven Kovaka's.

I agree that the POS and the numbers are being manipulated, but I also think there is value in Mr. Fekete's analysis, and basis spreads, contango and backwardization theories.

Best,

FedFixNix

Gino
12th June 2008, 00:43
After I raised the observation that purchasing bullion on a 8 week delivery was equivalent to a futures contract, synchronistically, I happened to notice yesterday that the silver price on ebay.com.au was 25-50% above spot and then today I noted that Prof. Fekete has come out with another article on the silver basis (http://news.silverseek.com/SilverSeek/1213201099.php), in which he clarifies that the basis is:


“the difference between the nearest futures price and the cash price of silver”

Well, if we take ebay as representing the true cash price of silver in the open market, then the basis is certainly negative, because people are paying a premium for immediate supply.

Prof. Fekete goes on to say that:


”If hyperinflation is in store, gold will go into permanent backwardation, foreshadowed by a steep decline in the basis . . . permanent backwardation in silver will precede that in gold. Thus silver is the ”canary in the coal mine”. But you have to have ears to hear the canary sing.”

Ironically, the truth in the metaphor is that the canary does not announce a problem by singing, but by dying. So, one must be watching the correct canary to receive the warning.

If silver is the canary in the mine, is ebay its cage?

I’d hate to be a miner, watching a canary that the mine manager has cunningly placed on life support to maximise production and profits before the mine is shut down!

Richard
12th June 2008, 01:07
I’d hate to be a miner, watching a canary that the mine manager has cunningly placed on life support to maximise production and profits before the mine is shut down!

You know, I said the very same thing as I was reading that article.

I suppose this belongs in that topic, the article section, but for the most part...

Prof. Feteke only reinforced my "belief" that manipulation has and is taking place, which means of course that reinforces my "belief" that the manipulation will be blowing up sometime soon. And about the Chinese hedging their reserve dollars with silver....

Though he seemed to be trying to make a case for no manipulation, just pointing out that the Chinese govt. probably doesn't sell much of it's vast hoard, except to re-buy it cheaper when it's forced to, again he made the case that manipulation is in fact taking place! The Chinese are, if they are doing this, are selling to buy back more at a cheaper price... well, like many of us here are doing! They know the short postioning is going to bring down the price, so why not take advantage? Is that how they're being "forced to sell"? Hmm...

nuslvrkwen
13th June 2008, 11:54
Hi jbh & Gino -

I printed out Professor Fekete's article Putting Loincloth On the Naked Bogeyman, and I've got a question: :roll:

Is the current trend in silver backwardation? Where instead of the market being 'dead' because price is low and it's hard to find it - could silver be in backwardation because the regular way the physical market would work would be for 'horders' to sell to their dealers and the dealers turn around and sell to another buyer. Dealers haven't been able to turn large orders of physical bullion and ingots around as quickly as they used to in say - January of this year? And those selling metals on eBay would be selling it with a premium plus the spot price. Now, if I understand the article and Gino's explanation, these trends are a few days long right? Not for months? Or ARE THEY?

If these trends can start and stop after a week or two then, the downward price trends really are signs folks are HORDING physical. No body will want to sell and the low price will stay low for a bit until someone has to BUY - which will make the physical price and the futures price rise?

joshrain
13th June 2008, 19:55
hi,

i don't understand the futures market, but how does one know the future price and who determines it? it seems like trading on basis is a guaranteed profit if i know the price in the future? what are the downsides to basis trading?

Gino
15th June 2008, 05:19
The significance of the basis, according to Prof. Fekete is that sustained backwardation is a tell tale signal of an economy experiencing significant inflation and that deepening backwardation is signficant of hyperinflation of the currency.

So, nuslvrkwen, yes, I do contend that the market we participate in (small time, individual investment in precious metals) is, in fact, in backwardation.

The reason is that the difference between the most immediate future contract price (spot price for 6 - 8 week delivery of freshly minted metal) and the costs for immediate delivery (ebay) is consistently negative and the divergence is likely becoming greater.

Official figures quoted for the spot price are reflective of a market size 100 times the possible physical supply. That is, the spot price does not reflect the actual value of the physical metal but the imagined value of the paper equivalent.

In Australia, with a supposed spot price of A$17.50 at the moment, people are selling Silver for over A$33 per ozt on ebay. If the official numbers are meaningful, this disparity is outrageous and makes no sense. The fact that people are actually paying such a premium just means that the official numbers are meaningless. People are disregarding the official value in favour of securing their supply.

If you don't believe me, put you metal on sale on ebay and see what the market value is. You will get at least 50% over spot. If you do sell, let me know how much you get. If you don't, ask yourself why not. If it is because you are concerned that inflation will mean you could be left behind, then Fekete is right in his theory.

Precious metals are going into hiding before the storm of inflation breaks onto the consciousness of the masses.

Trading your stash of metal on ebay for a guaranteed profit to finance you purchasing an even greater quantity of new metal on a future supply contract with NWM, Perth Mint, or whoever you buy bullion from, is the poor man's (or woman's) way of trading the basis. Note, you can not do this if your metal is a paper certificate.

FedFixNix
15th June 2008, 13:41
Prof. Fekete goes on to say that:

If hyperinflation is in store, gold will go into permanent backwardation, foreshadowed by a steep decline in the basis . . . permanent backwardation in silver will precede that in gold. Thus silver is the ”canary in the coal mine”. But you have to have ears to hear the canary sing.

Ironically, the truth in the metaphor is that the canary does not announce a problem by singing, but by dying. So, one must be watching the correct canary to receive the warning.

If silver is the canary in the mine, is ebay its cage?

I’d hate to be a miner, watching a canary that the mine manager has cunningly placed on life support to maximise production and profits before the mine is shut down!

Good observation Gino. But isn't that exactly what you, and all of the rest of us, are? Miners watching the canary on life support?

Which is one reason I am a bit reluctant to trust Prof. Fekete's basis theory as a reliable predictor of hyperinflation. Another reason is that I trust Shadowstats more than the official inflation statistics.

FFN

"Let me issue and control a nation's money and I care not who writes the laws." - Mayer Amschel Rothschild, 1790

"Those few who can understand the system (check book money and credit) will either be so interested in its profits, or so dependent on it favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." - The Rothschild Brothers of London

FedFixNix
16th June 2008, 14:39
Here's the real scoop. I think Ted Butler has it figured out:

http://forums.silverseek.com/showthread.php?p=5855&posted=1#post5855

FedFixNix

Gino
27th June 2008, 18:50
So Gino based on what silver's been doin the past two days - are we in backwardation now? NOT using eBay as open market just going by what I think I understand about basis, this jump just today gave us much deeper backwardation, correct?

Well, nulsverkwen, not using eBay, we can take a look at www.kitcosilver.com (http://www.kitcosilver.com) and see that:

Basis = Nearest Futures Contract Price – Most Immediate Spot Price
(per ozt) = US$17.57 (September Contract) – US$17.48 (Official Spot Price)
= US$0.09 in contango

So, no, the silver market is not in backwardation . . . officially.

However, let me do a spot check on ebay.

1kg Silver Bullion for immediate delivery = $631.50+ (Still 2hrs bidding remaining)
1kg Silver Bullion contract for 3 week delivery from my supplier = $605

Basis = A$605 – A$631.50
(per kg) = -A$29.50 (will increase with 2 hrs of bidding to go!)

Therefore, we can say that in the real market, we are certainly in backwardation. This is even more obvious when you ask yourself at what price would you sell today. I for one would not consider selling for anything less that 50% over spot at the moment and not on a weekend. I believe we are now about to experience significant price increases and if I sold, it would be to immediately buy back in, which I can not do on a weekend. In fact, I wanted to buy on Friday afternoon to ride the panic that I feel will ensue on Monday, but found that my supplier stopped taking orders after 4:00pm. Ouch!

Argentum
27th June 2008, 20:08
Bullion Direct is open 24/7 - which is why I have an account there ((and others of course))

FedFixNix
27th June 2008, 23:16
A very nice analysis, Gino.... and I tried buying more physical today too, but the stores were sold out. I did by quite a lot through an ETF though, and am pretty well set for next week's action.

The panic is already setting in, and I think a big upside move is coming, backwardation and all....:D

My bigger worry is that an Iran strike is in the works, either by the US or Israel, and that will infuse massive defense spending into the military industrial complex. That will probably help the dollar, the dow, and hurt PMs...

...at least that is how I see it now.

If there's no national emergency the Dow will keep falling and PMs will keep rising.

YOMMV