muses of the moment

March 16, 2009

Silver Backwardation

Just as we had gold backwardation last fall, it looks like we have silver backwardation now.

James Turk of goes into the details.

This means that there is a disconnect between the price of paper silver vs. physical silver. It means that investors do not believe that they will be able to get actual physical silver if they traded in their paper. Silver has been in backwardation since January 21st. This is very uncommon.

It points to a few things in the future:

  • Physical metals on paper will be worth much less than the physical coins, so buy the physical metal. If you wish to own some paper, that’s fine, just don’t make it all your precious metals holdings. Understand the risk here. (James Turk suggests not holding any paper, all coins and bars.)
  • Physical metals will be impossible to buy once this disconnect is truely understood by the average investor.
  • Large investors already understand this and are buying the real stuff now.
  • There is not enough physical metal to meet current paper contracts.

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