Like many other things seeming ‘backwards’ these days, the silver market is technically in a state that’s literally referred to as ‘backwardation.’
Basically, backwardation is a situation where a commodity’s spot price is more than its forward futures price. It’s very unusual and means investors are paying a premium to own commodity now rather than in the future.
(For example, if you’re hungry, you will gladly pay more for wheat delivered now rather than 3 months into the future)
Mark O’Byrne of GoldCore comments “Backwardation strongly suggests that the physical bullion market is very tight with continuing robust demand and limited supply. It also suggests that silver users and investors are willing to pay a premium in order to secure the physical metal.”
Opinions on why backwardation is currently occurring vary far and wide but the two main ones are short-term supply shortages and the other reason has to do with industrial users.
There’s currently much speculation regarding the supply of physical silver out there. Some believe it’s dangerously low with some large investors saying it takes quite some time to take delivery of a large order.
The U.S. Mint for example has suspended production of its popular Silver Eagle.
But with the fear of supply shortages, the silver price could easily slide into backwardation as investors get more and more nervous about waiting to take possession of their metals.
The other reason being circulated is industrial demand. With interest in precious metal investments like silver soaring, industrial users of silver are hedging their bets by locking in prices today…essentially, they hedge production by selling futures, which is what’s causing the backwardation.
If this is indeed the cause of the current backwardation in the silver markets, some say it’s causing investors to think supply shortages are occurring.
It’s unclear how long this backwardation will continue. If supply shortages do occur, you could see silver increase dramatically in price.
We’ll keep you posted.
Thank you for the encouragement, all. Too bad we can make the price, via our mentall powers (joking, of course), dip when we place an order, then suddenly rise really fast.My fear is that on one hand I want to wait for my first 300 ounces to arrive before I place another order. Which should be by about January 14. But on the other hand, I don’t want to wait at all, in case the price spikes tomorrow.I agree with you all I do NOT in anyway (well, at least not consciously) think of trying to get rich with silver. I think in terms only of preserving what I have and of balancing my expenditures. Currently, I am spending down my savings.Social security disability does not pay enough. So, I plan on buying 1000 ounces and then stopping.I will ALSO try to resist the overwhelming urge to look at the price of silver every day thereafter. I’ll try to look at it only twice a year, maybe. Otherwise, I might get scared and bail too early.I am completely NOT a gambler. Well, at least, I never realized until after the past 6 months of watching silverbugs that I have been gambling my entire life all along on fiat currency and not knowing it. I have never gone and never will enter a casino. I got all my money out of mutual funds in 2002. Before then, I thought mutual funds were safe, because the bets are distributed across the ENTIRE MARKET, and therefore I am not putting all eggs into one basket. THAT was no guarantee of rising wealth, and I lost money. So I put all my money into ordinary CDs at the bank. Sure, I hated the low interest, but, I thought, “oh, at least the interest is guaranteed!” I am still stuck with some leftover IRA CDs, which I hate, because of the tax rules when you take the money out, which force me to take out only a little bit each year. Sure, the banks do not cheat me out of that interest. But, the interest rates have dropped so low as to make it not worthwhile.
The backwards futures is that the supply is all around for a new currency development! watch it happen!