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Bob Coleman said:#Gold and #Silver Exchange for Physical (#EFP) discussion
The following may be technical in detail, however I hope it helps educate others how the precious metals markets function.
On December 11, 2024 we had a blow out to the upside on the EFP premium. This meant that the futures price went to an extreme premium relative to the spot price.
Gold February contract to Gold spot went to a $45 premium (normal was about $24 premium)
Silver March contract to Silver Spot went to a $1.05 premium (normal was about 45 cent premium)
Normally, when this occurs, arbitrage trading would have players deliver physical to the Comex and short the lead month contract. This would alleviate the abnormal pricing environment.
speed up to today's EFP :
Gold February contract to Gold spot went to a $12 premium (normal is about $13 premium)
Silver March contract to Silver Spot went to a $.53 premium (normal is about 35 cent premium)
As one can see, Gold has normalized while Silver is still elevated. The chart below shows the increase in the Gold Comex registered category which helped alleviate the EFP premium while the Silver Comex registered category saw a decline in ounces. This seems to explain why the Silver EFP is still unusually elevated. Players have yet to deliver silver 1000 oz bars. This could be due to the elevated premiums they would have to pay to obtain the bars. Normally when bar premiums are elevated, that is a sign of tightness.
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Maybe it's moar a function of silver the industrial metal.I think 1000 oz bars have been 50-60 cent premiums for some time now. I like to check SD for those from time to time.
That's what I'm wondering. Industries that do require silver...how is it delivered? We know how bulk steel is delivered - plates or bars, for those industries who cannot process iron ore on-site. How is industrial silver shipped?It could just be that SD Bullion 1,000 oz bars are not really indicative of the real industrial market. Perhaps they just keep a few on hand but they are clearly marketing to retail. I doubt a Tesla goes to pick up a couple bars on SD.
Yeah, but, increased demand, on a certain form, puts a premium on the price for it in that form.I think most is either silver shot or 1,000 oz bars. But they could easily have wholesale prices that are different than SD retail pricing.
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Further clarification on the silver situation and yesterdays article tagged below.
The article mentioned the following
“In the #silver market, major dealers can ship metal from London to New York warehouses to close out arbitrage trades, and 15 million ounces of silver have been added in Comex silver warehouses during the past five weeks.”
When it comes to financial and collateralized trades not all silver represented in the Comex stock report are the same. It is important to note that these 15 million silver ounces may not represent available silver to close out arbitrage trades. Some of that silver is privately held. In order to settle a short position with physical silver on the Comex, silver must be put on receipt/warrant and delivered into the registered category where these warrants can be delivered to another clearing firm. The eligible category has silver with no warrant attached.
The article failed to note that registered category actually saw a decline of 5,749,286 silver ozs, while the eligible category saw an increase of 20,674,179 silver ozs. Yes, silver can be transferred from eligible to registered, however, for those who are short futures or worse, short the EFP (Exchange for Physical spread trade), margin or collateral calls must be met with closing shorts, putting up hard dollars or delivering silver which is on receipt as collateral or hedge. We can see Silver has not been put on receipt and just the opposite is happening. This is why the EFP continues to blow out. Participants may be scrambling to find and deliver silver. What adds to this stress is banks seem to be lifting offers on 1000 oz bars, essentially lifting the purchase premium above spot.
Please remember, we are dealing with massive leverage not only on futures contracts but options and private party OTC trades (EFP). These spreads are designed to decline as time gets closer to the futures delivery month. Seeing this go in reverse has possibly trapped many participants.
This is the classic short squeeze with a lot of leverage added. The question is will the silver arrive by boat and into the Comex warehouses to cover the short positions by January 20, 2024 (Inauguration Day) and if not, will any of this silver be subject to tariffs if President Trump implements his tariff policies.
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Now, a spike in so-called lease rates in London this week signals that an increasingly frenetic global hunt for bullion is under way as major dealers seek to shift metal to the US before any tariffs are imposed.
Lease rates reflect the return that holders of bullion in London’s vaults can get by loaning their metal out to other buyers on a short-term basis. Normally, the returns on offer sit close to zero, but this week they’ve surged to historic levels, with profits on one-month lease rates exceeding 3.5% on an annualized basis.
That’s the highest level since at least 2002, and it signals surging demand for metal in London’s vaults. There have been similarly extreme moves in the silver market, and some analysts and traders warn that there may not be enough freely available metal to meet dealers’ needs.
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Are you suggesting that increasing the delivery (imported) price would mess up their leverage schemes?The market isn't fully pricing in the risk of a tariff. If Trump actually pushes through a tariff on gold/silver it's going to cause some chaos in the paper markets.
Essentially. See all posts from post #91 down in this thread. The premium on Exchange for Physical (EFP) is blowing out and this EFP premium means huge losses for shorts that can't find metal to cover their position. The shorts in the COMEX are trying to import metal from London (LBMA) right now to beat the potential tariff, but the LBMA doesn't have sufficient metal available. If Trump ends up not enacting the tariffs, this will fizzle out as a nothingburger. If he does enact the tariffs, the shorts in the COMEX are up shit creek and the paper markets will be stressed (ie. price goes up).Are you suggesting that increasing the delivery (imported) price would mess up their leverage schemes?
COMEX gold & silver futures have recently been trading at unusually high premiums vs. their spot prices, driven by concerns that Trump might impose tariffs on their importation.
This morning, a memo released by Trump's team eased those fears, leading to a sharp drop in the premiums.
and on London...? Asking for a friend.
Nobody knows. People keep asking him but he doesn't say it.Do you have any idea what he is watching for this EFP London price?
Exchange of futures for physical (EFP) is one of a few types of privately negotiated agreements that can then be registered with the exchange. The volume involved in the transaction is shown in the days’ trading when the transaction is registered, but the price at which the transaction was completed (the privately agreed upon price between the parties) is not revealed.
Contents...
- Overview: Silver Market Dynamics and Prospects
- Resilience Amid Macro Headwinds
- **Tariff Risks Mean Higher Price Risk
- **The EFP: Canary in the Silver Mine
- **India and China Premiums Persist
- **Global Central Banks as Silver Buyers
- Supply Constraints and Production Trends
- Conclusion and Comments
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