I’ll give it a shot.
There is a lot of contracts in silver out there—more than can be satisfied if they are all redeemed at once.
Companies selling the futures contract are being exposed for not having enough physical silver on hand to meet redemption requirements.
If that is exposed, the whole merry go round stops, and silver will go much much higher.
There are folks out there who have been saying this for awhile.
They tried to prove a point by accumulating 5,000 contracts and requesting redemption in physical silver.
To avoid being exposed COMEX offered to pay them 80% above the price of silver on Friday Feb. 25th in exchange for their contracts.
Why do that? Why not just deliver the silver?
Because evidently, there was not enough silver on hand to meet the withdrawal request.
Silver contracts are traded like oil contracts. Doesn’t always mean there is enough silver on deposit to meet the value of all the contracts in circulation.
If there is not enough silver, the price must go up. The price is kept artificially low by the appearance that there is enough physical silver to meet the total amount in the contracts.
The theory is, there is not. And if that is exposed, the price of silver will soar to its real value, whatever that is.
To avoid that, these guys were offered 80% above spot to go away and redeem their contracts with no delivery of silver.
Appearances stay normal and everybody is happy.
Until someone else threatens the same thing.
Exit82, well done, thank you.
I pay close attention to the physical market, and while silver is certainly still freely available, I’ve been hearing a lot of chatter about it drying up here and there.
While I’ve no proof, I’ve no doubt that COMEX has run dry and is on the brink of defaulting on silver delivery. All it would take is a group like the JPMs INSISTING on physical delivery, and then blowing the whistle loudly when COMEX defaulted, starting a “run” on COMEX in other markets.
I would find that rather amusing.
Thank you all for both short and long explanations. So, I have one question, if COMEX (or whomever they represent, and who might that be?) pays 80% above market so as not to make actual delivery, what is to keep the lucky person/group that got all that extra money from turning around and buying another round of silver contracts? Or do they sign an agreement to stay out of the market for a certain period of time?
Actually, I have a second question. In 1995 I was selling modest quantities of silver jewelry, mostly rings. The market price then was $4/oz. Of course the finished product was more, even at wholesale. Then I had 10 years of death and dying in the family, and cleaning up afterwards. Now I am ready to start selling jewelry again. I was thinking of setting up an eBay store, but wonder if I should wait a bit until I have a better sense of where silver values really end up. I have at least 2,000 pieces to sell, all of which will need to be repriced. I could use the money, but this money is not essential at this time. Advice, anyone?