Friday, September 9, 2011

Silver Backwardation Continues to Increase

Silver backwardation refuses to go away.
With open interest remaining near recent lows (112,137), backwardation continues to increase throughout back month contracts in silver.
Front month silver settled Thursday at $42.479, and silver still enters backwardation with the Dec 2012 contracts, which settled at $42.462.  The July 2016 contract has widened to a discount of $1.471, a 3.5% discount to front months.
3.5% is an enormous discount for a back month contract, especially when 4 years of vault storage fees and insurance are added in.
(In contrast, back month gold contracts settled at $2,033 vs. $1854 for front months, a 9.7% premium to account for 4 years of fees and insurance). 
This means that silver's back month contracts are in effect trading at a 13.2% discount compared to gold back months which remain in a strong contango, despite the recent massive rally to $1923.
This is perhaps the clearest evidence yet of the tightening physical supplies in the silver market, and general distrust among traders that ample silver will be available for delivery 4 years from now.
We couldn't agree more.

Daily Settlements for Silver Futures (FINAL)Trade Date: 09/08/2011


Month




Settle Estimated
Volume
Prior Day
Open Interest
SEP 11




42.479 264 873
OCT 11




42.491 339 362
NOV 11




42.512 21 15
DEC 11




42.530 34,441 76,866
JAN 12




42.553 42 188
MAR 12




42.558 1,487 7,943
MAY 12




42.564 33 2,498
JLY 12




42.553 11 1,955
SEP 12




42.528 8 538
DEC 12




42.462 1,077 9,042
JAN 13




42.424 - 1
MAR 13




42.352 300 460
MAY 13




42.293 18 40
JLY 13




42.231 20 2,204
DEC 13




42.109 320 7,015
JLY 14




41.858 - 232
DEC 14




41.714 2 1,202
JLY 15




41.448 - 156
DEC 15




41.233 - 536
JLY 16




41.008 10 11
Total





38,393 112,137