Bruce writes:
Doc- Thanks for all you do. I must be very ignorant but I read an article stating that you can buy silver futures as far out as April 2017 for less money than you can buy physical silver for now.
I know you say if we don’t have it on us that we don’t really own it and to stay away from paper silver but why not lock in the price of silver now for a period 5 years out which rather than averaging in over a five year period and paying higher prices as it continues to go up.
That gives you a chance to put money away for five years and have it available in 2017 when the contract comes due.
It seems you could own more 5 years from now if you bought a futures contract now, at a price that is actually less than if I bought it today.
Thanks in advance for you help.
Bruce, normal commodity markets trade in contango.
There is a reason silver is trading in backwardation- with a discount for back dated 2017 contracts. The owner of the bullion must pay vault storage and insurance fees, so typically a contract 5 years out will be more expensive than a front month spot contract.
This means that the free market is concerned about the likelihood that the other side of that trade will be able to deliver that silver in 2017.
Quite simply this is the reason for the discount and the arbitrage opportunity you are seeing. Sure, you could obtain silver in 2017 at a discount to current spot pricing- provided your counter party does not default on their obligation in 2017.
That is a real risk that the market is discounting in silver.
Backwardation in a commodity can be caused for 2 reasons. Either traders want out of the currency (they have no wish to receive US dollars when future contracts expire as they fear those dollars will be worthless) OR they fear that the physical commodity will not be available for delivery when the contract matures.
If a lack of confidence in the US dollar was the PRIMARY cause of backwardation in silver, clearly we would also see a significant backwardation in the GOLD MARKET (as well as other commodities)!
The lack of coinciding backwardation in gold indicates that major players are concerned about the SUPPLY OF PHYSICAL SILVER!
This means that the primary reason silver remains in backwardation is due to risk of COMEX SILVER DEFAULT!
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_silv.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_gold.gif)
Another Bruce.
Remember the big blow up on this site Doc.
Now Bruce there will not be a stock market in 2017, or the COMEX. NYSE will be a museum and the dollar will be wall paper. Silver will be an extremely rare commodity to get a hold of at any price.
Selling Futures that far out is just another way to fleas more fiat out of someone while the dollar still counts for something.
Like the doc and others say… counter-party risk. Who says you’ll ever get delivery. They’ve already fleeced you by 2017. Why should they care?
That’s the point about backwardation strange word as it may seem. It doesn’t happen if everyone thinks a commodity is going to tank. Quite the opposite actually if looking at real markets and real delivery.
Best,
R3K
Thanks Doc. I always enjoy your question and answer posts. They really help me to understand since I am not a professional.
Just ask Gerald Celente and other MF Global clients how well buying futures works. Your futures dealer can and will steal your money or your silver and then blame it on either market conditions, a failing company, or “we don’t know where the money went”. All of these seem to be acceptable non-answers according to the current Department of Just Us.