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Posted 04/27/2024 3:57 pm
Just a quick thing on spot.
I got interested in coins partly because I spent decades on wall street and some of what I was trading was commodities.
So spot itself tends to be lower than where people will sell physical bars for a few reasons.
Number 1, contracts for silver are good for 5000 ounces which is 135k at current prices which is a lot. Most retail buyers are buying a few ounces and the smaller the trade the more sellers want a bit of a premium for the hassle. Retail sellers of gold or silver bars will often sell not that far from spot for 1oz and 100 oz respectively, but will charge a lot for small clips that make them no money.
Number 2, whilst COMEX futures are indeed theoretically deliverable into the underlying, in practice this almost never happens. I am one of the very few wall street traders that has ever taken delivery of even a few futures, and I can promise you it is a massive hassle and almost none of the major futures players are equipped to take delivery. it is also expensive to do so. So even if silver costs a dollar more to buy than the spot, no wall street bank is going to take physical delivery and sell to retail guys. It's just too expensive to do all that. If silver is ever trading at say 10 dollars over spot, they will indeed come and do that probably and the arbitrage will go away.
Number 3, related to 1 even if you are a seller to retail you usually wont be bringing in 5000 ounces all at once if you know the market can easily move a dollar in a day and your margins are tight. Perhaps if you are very big and 5000 ounces is just a day's inventory you might do that but you can buy direct from the producers almost as cheaply if you do that size.
Number 4, at very high levels or very low levels of spot the price between spot and physical tends to diverge the most. If the price has been going up dealers tend to feel comfortable charging a bit more or if the price has been going up due to physical demand they may have trouble sourcing close to spot. Conversely, if the price has been going down dealers may be stuck with inventory at higher levels and need to sell and better spreads to average in back to having a profit.
Having said all that, in a very stable market, I have seen physical trade significantly below spot particularly if it is below 0.999 fineness for the same AGW
I got interested in coins partly because I spent decades on wall street and some of what I was trading was commodities.
So spot itself tends to be lower than where people will sell physical bars for a few reasons.
Number 1, contracts for silver are good for 5000 ounces which is 135k at current prices which is a lot. Most retail buyers are buying a few ounces and the smaller the trade the more sellers want a bit of a premium for the hassle. Retail sellers of gold or silver bars will often sell not that far from spot for 1oz and 100 oz respectively, but will charge a lot for small clips that make them no money.
Number 2, whilst COMEX futures are indeed theoretically deliverable into the underlying, in practice this almost never happens. I am one of the very few wall street traders that has ever taken delivery of even a few futures, and I can promise you it is a massive hassle and almost none of the major futures players are equipped to take delivery. it is also expensive to do so. So even if silver costs a dollar more to buy than the spot, no wall street bank is going to take physical delivery and sell to retail guys. It's just too expensive to do all that. If silver is ever trading at say 10 dollars over spot, they will indeed come and do that probably and the arbitrage will go away.
Number 3, related to 1 even if you are a seller to retail you usually wont be bringing in 5000 ounces all at once if you know the market can easily move a dollar in a day and your margins are tight. Perhaps if you are very big and 5000 ounces is just a day's inventory you might do that but you can buy direct from the producers almost as cheaply if you do that size.
Number 4, at very high levels or very low levels of spot the price between spot and physical tends to diverge the most. If the price has been going up dealers tend to feel comfortable charging a bit more or if the price has been going up due to physical demand they may have trouble sourcing close to spot. Conversely, if the price has been going down dealers may be stuck with inventory at higher levels and need to sell and better spreads to average in back to having a profit.
Having said all that, in a very stable market, I have seen physical trade significantly below spot particularly if it is below 0.999 fineness for the same AGW
