Silver as an investment

There Is an Ongoing Clash Between the Forces of Paper Supply and Physical Demand

Be prepared for the next great transfer of wealth. Buy physical silver and storable food. / By Ned Naylor-Leyland / July 24, 2013

In light of the deep sell-off in the Gold price, I present 3 charts to clarify what has (and hasn’t) happened. Chart 1 is a chart of Spot Gold, the second an illustration of what makes up the daily ‘Gold’ market, the third shows the enormous flow of physical metal from West to East in the context of Global mine supply. There is an ongoing clash between the forces of paper supply and physical demand – paper supply has won the latest round, but its objective of satisfying and slaking demand for the real metal has failed entirely.

The spot price graph is annotated with events that have happened since Q3 2012. All of these points (1-6) seem pertinent when evaluating the sell-off in paper Gold, but none more so than the entry of the Gold market into a state of permanent backwardation around a year ago (1). With vast above ground inventories (supposedly) available to borrow, the Gold and Silver markets should not offer a risk-free arbitrage for any amount of time. The fact that it has remained and widened over a year indicates that the physical market has tightened up substantially, a postulation that is corroborated by the growing premiums being paid in Shanghai and Delhi (in Delhi dealers are paying over a 25% premium for NNS 8g fine Gold vs 2% in Q4 2012) and the ongoing wholesale delays in the delivery of substantial bullion tonnage (2 tons or above).


Thanks to BrotherJohnF