15 February 2009

18 Days and Counting - Silver Backwardation Persists in the London Market Place

Silver has been in backwardation for the 18 trading days since January 21. The mid-rate for the longest contracts is now slightly positive.
This backwardation is about three times more severe than the mild backwardation than existed from December 8 through December 24 in 2008.
We can see that since 2006-2007 where rates were about 4-5%, this state of backwardation is fairly unusual. (The LBMA only lists data back to 2006, but I believe it is a fair comment to say that on an even longer timeline, this is unusual.)
Furthermore, starting in roughly June 2008, the 12-month SIFO rate flipped over from being the lowest rate to, in general, the highest.
Also, the disparity between the rates seen in 2006-2007 has largely disappeared; the market appears to be treating a trade on silver 12 months later as quite similar to a trade on silver 1 month later.


[All graphs in this article were created by me from this LBMA source and this US Mint source and my file is available by request.]

Let's now also look at the LBMA Silver Fix price history for a 1000 troy ounce bar. Despite all of the tightness in the market as demonstrated by the SIFO chart, the Dollar price of silver is still well below the average price for 2006-2008, while Euro/Pound are nearing new highs due to FOREX market. During this latest backwardation, the Euro price is within 12% of its March 2008 high, while the Pound is within 23%. However, the dollar price of $13.37/oz. is 36% below its $20.92/oz. high.

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