real/paper price

[Ichimoku]

Hi everyone,
what happens if the price for paper silver and real silver separates?
What do I mean by that: Lets assume that silver drops to $12 per 1oz, on paper! Will there be a bullion dealer that will sell his inventory for $12? Probably not. So lets say they stop the price drop for the real stuff at $20. Wouldn't that automatically stop the paper silver drop? Reason: If I buy a silver future at $12 and take delivery I could sell the real silver for $20 and make a instant profit.

Is there a mistake in my thought (it is late)?

[abreik]

You are referring to arbitrage. I wouldn't count on a major price divergence like that for that very reason. An outright default of a paper market (or multiple paper markets as a result of a run) might be possible if the depositor doesn't actually hold the metal. I would expect a collapse in volume following a paper market failure, but there would still be sales as mines have to sell (assuming they are in debt, which they usually are) and manufacturers have to buy, but in that environment other sellers may close shop. I don't think that environment could occur without a default, so either paper price matches physical price (plus manufacturing/delivery premiums), or the paper price will cease to exist.

[Viper_99]

(07-12-2012 05:15 PM)abreik Wrote:  You are referring to arbitrage. I wouldn't count on a major price divergence like that for that very reason. An outright default of a paper market (or multiple paper markets as a result of a run) might be possible if the depositor doesn't actually hold the metal. I would expect a collapse in volume following a paper market failure, but there would still be sales as mines have to sell (assuming they are in debt, which they usually are) and manufacturers have to buy, but in that environment other sellers may close shop. I don't think that environment could occur without a default, so either paper price matches physical price (plus manufacturing/delivery premiums), or the paper price will cease to exist.

Great explanation!

[AgShaman]

You'll have to create, or tap into a secondary market to take your profit on a silver contract.

Of course that's after the brokerage fees....and the money you spend on securing delivery of the 5 big bricks of silver you'll be getting when you stand for delivery on a 5k oz contract.

Perhaps Tulving will take them bricks off your hands for a minimal haircut....or you could have them shipped to a private Mint and have them turned into something nice and smallish....then turn around and sell them at your leisure. There's probably more of a market for 100 oz bricks than the "big-uns"....which will provide for your dilemma.

It's not a bad plan...if you have the time and patience for the turn around times (and the cash to take the contract of course)....and the divergence develops 'a-la' 2008. Your costs will no doubt close the gap on your perceived profit.

Don't forget....you have to make arrangements to take delivery....or pay someone to do it....which is why only a small percentage exercises this option....and settles in physical vs paper.

At the end of the day....if you have 150k bones lying about waiting for some sort of maneuver to "show and develop" as an option to grow real wealth....then you also probably have already positioned accordingly within this bull market....and your stack has been built...or is near it's completion regarding the building phase.

Become your own bank..."Stash n Stockpile Weapons of Stack Construction!"

[slow to learn]

I have found that dealers are not emotionally attached to the metals as we stacker's are all they care about is spot price. When I try to talk about the worlds economic condition and how it will effect the price of food, metals etc. the three dealers I deal with look at me as if im crazy!!!!!!! I feel there will be people selling and buying at any level of the game, until there is a complete break down of the worlds monetary policies!