I have been tracking the silver market closely for a few months now. What I have learnt about how prices are arrived at is interesting.
I never thought there were so many possible prices, all of them correct and all of them wrong at the same time.
To set the context, COMEX silver price right now is 109 dollars for a troy ounce, which is 31.1 grams.
The benchmark price worldwide is set by the COMEX in Chicago. This is an online exchange and operates 24/7 between Sunday evening and Friday evening US time.
The COMEX price of silver has been suppressed for the last fifty years, and that stranglehold is beginning to break. By whom and for what reason it was suppressed is a topic for another day.
COMEX trades mostly physical contracts, with very few contracts standing for delivery. The amount of paper contracts is a hundred, or more, maybe a thousand times the size of actually available silver.
Big Banks have been shorting silver for years and they are sitting on huge short positions which they will need to cover by buying them back in the next five months or so. Meanwhile, the price of silver has shot up so much that they are sitting on billions of dollars of losses. Big enough number of billions to turn some of them insolvent.
The Shanghai market which is the other main market, operates mainly on physical delivery. The price there right now is 125 dollars.
Arbitragers should be buying silver by the truckload and flying it to Shanghai to make easy risk free money. Except that the metal is difficult to source right now, they need to find the physical first.
However, either Shanghai prices have to come down or Comex prices have to go up, or both. Arbitrage of more than a couple of dollars is not sustainable.
Silver has risen about 250 percent in the last one year, and in what can only be called Silveronomics as opposed to normal economics, the demand has exploded as the price has gone up. And supply is getting scarcer by the day.
Spot prices in the Indian market should be ideally the Comex dollar price divided by 31.1, times the exchange rate, times 1.09. That 9 percent is six percent customs duty and 3 percent gst. The actual street prices on any given day are between minus 0.25 percent to plus 1.5 percent of this number.
The Indian ETFs base their prices on Street prices in India. They are typically about 1.5 percent above street price. Last week it went to about 6 percent higher than street price and swung to 5 percent lower than street price the immediately next day. That variation is due to local supply demand dynamics.
The futures prices on MCX are a little higher than spot, which is normal. However, silver is beginning to see instances of Backwardation worldwide which means spot is quoting higher than futures. This indicates a highly stressed physical market with scarcity of supply.
The street prices I am talking of are the prices at Zaveri Bazar or equivalent places in Bangalore, Ahmedabad, etc. The prices at big branded shops will be more, since they add their own margins.
I am still talking about silver bars and not jewelry. For jewelry, add twenty percent or more to this price.
That is as far as the market is concerned.
If you have bought silver, there is also:
The price at which you have bought,
Your target profit,
Your expectation of future prices,
Your risk tolerance, and
Your position sizing,
These are the factors that will influence your decision on when to sell.
Another thing I have learnt over the last few months is that the main stream media is not to be trusted. If you follow only main stream media, you will be an ignorant lout who is thoroughly manipulated by narratives, in short a dumb sucker.
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