Silver to $16.00 an ounce?

[Dman]

Does anyone think silver will go below $16? I predicted it would go to $16 when silver was over $40 and I was nearly blasted out of this forum.

 

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[jim4silver]

Does anyone think silver will go below $16? I predicted it would go to $16 when silver was over $40 and I was nearly blasted out of this forum.

Do you mean the paper price or what it costs to buy an ounce of real silver? Right now my local coin stores are charging close to $7 per ounce of pure silver premium for JUNK silver. So to answer your question I would say NO if you mean will a person be able to buy physical silver for $16 within the next 3 years.

Congrats on being right on your call at $40. Hopefully you utilized your predictive capabilities and shorted the crap out of silver and made a bunch of $$$$$$.

As far as being "blasted out of the forum" I don't know exactly what anyone said that the time, but what would you expect if you post such a claim on what is definitely a more pro PM site at a time when silver is $40 and rising? Back then I stopped buying silver at $20 or so and felt like crying every day silver went up when it broke $30 and was headed to $50 and was damn glad when it corrected. I won't miss out next time it goes to $50 and hopefully beyond.

Jim

 

[TheCoinKid]

I'm thinking that spot silver prices are headed to $16 or below. Only time will tell for sure.

I'm hoping Jim is wrong about the physical prices, but the index/physical price divergence has held from some time now. The drop in paper price doesn't do me a bit of good, as I only buy physicals.

TCK

 

[jim4silver]

I'm thinking that spot silver prices are headed to $16 or below. Only time will tell for sure.

I'm hoping Jim is wrong about the physical prices, but the index/physical price divergence has held from some time now. The drop in paper price doesn't do me a bit of good, as I only buy physicals.

TCK

Not only has it held, but appears to be growing. Here is an article that claims the premiums on gold are skyrocketing in China.

The premiums here have not dropped as much as I thought they would by now, and junk silver premiums have gone up.

Chart of the Day: Gold Premiums in China Spike to $120, Up Nearly 5 Fold Since April | SilverDoctors.com

Jim

 

[TheCoinKid]

Jim,

I assume that the large premiums vs. spot applies mainly to small-time buyers, and that large accumulators and industrial users are taking delivery at prices very close to spot (or for whatever they've locked prices in at). I'm also guessing that the more recognizable forms (ASE's, 90%ers, etc...) are commanding the higher premiums. Since you seem to be fairly knowledgeable on this market, I'm interested on your take, i.e. (China aside) is the high physical premium mainly a small buyer phenomenon?


TCK

 

[TheCoinKid]

Otherwise, it seems there would be an giant arbitrage opportunity to settle futures by taking physical delivery and then sell to users/accumulators at a premium price, which would quickly cause the major futures and physical markets to converge.

Maybe an oversimplification my part.

TCK

 

[jim4silver]

Otherwise, it seems there would be an giant arbitrage opportunity to settle futures by taking physical delivery and then sell to users/accumulators at a premium price, which would quickly cause the major futures and physical markets to converge.

Maybe an oversimplification my part.

TCK

Do you have any evidence or proof that large buyers are paying close to spot? I don't mean any disrespect, but we can all assume and guess.

Jim

 

[jim4silver]

Jim,

I assume that the large premiums vs. spot applies mainly to small-time buyers, and that large accumulators and industrial users are taking delivery at prices very close to spot (or for whatever they've locked prices in at). I'm also guessing that the more recognizable forms (ASE's, 90%ers, etc...) are commanding the higher premiums. Since you seem to be fairly knowledgeable on this market, I'm interested on your take, i.e. (China aside) is the high physical premium mainly a small buyer phenomenon?


TCK

Sorry I didn't read both of your posts before I answered the second one. Here is the "problem" about trying to take delivery via comex: quite often the price gets pushed down right before a notice date which causes some of the longs to have to bail because they cannot keep paying the margin as the price gets pushed lower. It seems a bit counter intuitive, but once a person is long, it hurts their position if the price drops and they have to keep adding to their margin account. From what I am reading, many longs who are not big guys per se but want to take delivery of their 100 ounce contract get bumped out as the price is slammed down before they get to the point where they can effectively take delivery.

Further, the gold purchased via a contract is not really retail product (not one ounce AGEs, Krugs, etc) but instead is large bars, etc. and would have to be melted and refined to make product, thus disallowing any quick flips by contract buyers.

Just my opinion.

Jim

 

[TheCoinKid]

Do you have any evidence or proof that large buyers are paying close to spot? I don't mean any disrespect, but we can all assume and guess.

Jim

I saw your follow-up post and appreciate the response, but I was really asking you that question. Do you think large physical buyers are paying at or near spot, making the high physical premiums a small buyer phenomenon?

 

[TheCoinKid]

Sorry I didn't read both of your posts before I answered the second one. Here is the "problem" about trying to take delivery via comex: quite often the price gets pushed down right before a notice date which causes some of the longs to have to bail because they cannot keep paying the margin as the price gets pushed lower. It seems a bit counter intuitive, but once a person is long, it hurts their position if the price drops and they have to keep adding to their margin account. From what I am reading, many longs who are not big guys per se but want to take delivery of their 100 ounce contract get bumped out as the price is slammed down before they get to the point where they can effectively take delivery.

Further, the gold purchased via a contract is not really retail product (not one ounce AGEs, Krugs, etc) but instead is large bars, etc. and would have to be melted and refined to make product, thus disallowing any quick flips by contract buyers.

Just my opinion.

Jim

Again, thanks for the response. My "taking physical delivery via contract settlement" example was referring to the big guys, not the weak hands. Also, I'm not sure why, in your example, a buyer planning on taking physical delivery would buy on margin. My experience is that margin balances are settled when the position is sold. Physical delivery doesn't provide the funds to settle a margin obligation. Your "refinement to make product" comment is well taken. Regards,

TCK

 

[jim4silver]

I saw your follow-up post and appreciate the response, but I was really asking you that question. Do you think large physical buyers are paying at or near spot, making the high physical premiums a small buyer phenomenon?

I guess if someone is able to acquire their PMs via Comex or LBMA or whatever such exchanges they have in other places like Hong Kong, etc, they will pay less per ounce premium than at someone's local coin store but I don't know that for sure because I have never held an actual futures contract (only options long ago).

My opinion is that the buying of large amounts of physical gold going on in the world is mostly central banks and such, and they are buying to place it on the asset ledger and not to sell as retail bullion products. From what I know, most refiners here buy from coin stores, we buy gold stores, individuals, etc in the form of jewelry and whatever bullion is mailed to them, then they use that material to make products, much like I assume a company like NTR does. I don't know about the other companies that actually make the blanks for the US ASEs (like Sunshine) with respect to where they get their material. Maybe they buy directly from the mining companies? I doubt though that many retail coins are made by melting Comex good delivery bars, at least at the large retail level. But even if they did there would be additional cost for the coin manufacturer because the large bars would have to be refined and processed to make the coins, which would cause a premium to be added when the consumer buys to cover extra cost. How much this premium "should" be to cover said costs I don't know.


Jim

 

[jim4silver]

Again, thanks for the response. My "taking physical delivery via contract settlement" example was referring to the big guys, not the weak hands. Also, I'm not sure why, in your example, a buyer planning on taking physical delivery would buy on margin. My experience is that margin balances are settled when the position is sold. Physical delivery doesn't provide the funds to settle a margin obligation. Your "refinement to make product" comment is well taken. Regards,

TCK

From my understanding, when a long decides to take delivery, they have to give notice to the short. There are specific times a person can give notice depending on that month their contract is. The long must thus maintain a certain balance in his margin account because a futures contract is in a sense "settled" at the end of each day (that is not the correct term) whereas money is taken from one and placed in the account of the other. For example, if the price goes up, money from the short's acct and placed into the long's to "settle" for that day. Not like stocks or PMs where you gain or lose when you sell. In Comex, the wins/losses are accounted for at the close of each session, that is why a long or short must maintain a balance in their account so the money can get removed when necessary. If they fail to have money their position is closed.

Back to taking delivery. At some point the long gives notice of intent to take delivery, but the acct of the long must have money constantly added if the price keeps dropping over time. This is what shuts out some wanting delivery, because they have to keep replenishing the money in their account if the price keeps dropping in the market before they can get their metals delivered.

Thus, it is not like a long takes a contract, makes a call and has 100 ounces of gold or 5000 ounces of silver shipped to his door that day. There is a somewhat intricate process that must take place over time so that the long can take delivery. At some point the long has to pony up the full amount required, but that is later on I believe. Plus there are storage and delivery fees, etc.

Just from what I have read about how this works for those seeking delivery via Comex.

Jim