Paper metal trumps physical metal.

cohodk

The MASSIVE premiums that were paid for physical have been completely destroyed. When silver was $12 for most of the year, people were paying 15%+ premiums for physical. Now it is trading at a discount. By the numbers---90% at $12 is worth about 8.6x face, yet was very difficult to obtain for less than 10x. Now with silver at $17+ (12.2x FV), nobody wants it for even less than melt. So while paper appreciated 42%, physical has netted only a 20% return.

I know what the arguements are going to be, but knowing the past, wouldnt you have rather made 42% vs 20%?

gsa1fan

I've sold all the 90% I want to at current & rising prices. I personally like the FEEL of silver NOT the thought/promise of it! Peace, Tim

cohodk

<< <i>I've sold all the 90% I want to at current & rising prices. I personally like the FEEL of silver NOT the thought/promise of it! Peace, Tim >>



Fair enough.

Personally I like the feel of greenbacks in my pocket. Isnt that what why we buy PM's in the first place. To make or save(preserve) money(greenbacks)?

RedTiger

Both paper and physical have a place and a time. Paper is better for trading for the short term, physical is better for insurance against off-the-wall economic or political scenarios. Sure during this particular trading move, SLV did better than physical. However, one data point doesn't make a strong case for any argument. In other instances, the opposite may hold true. Those buying physical back of spot right now, may do better than those putting new money into SLV, if silver keeps running higher and premiums for physical ever return. If something strange happens, or there is a scandal, and SLV has weirdness (like the natural gas ETF UNG recently did), or blows up completely, the physical buyers will come along and give a big "I told you so."

/edited for typos

cohodk

UNG was actually trading at a 20% premium. Would it be nice to buy at spot and get a premium?


FC was right!!

hiijacker

<< <i>The MASSIVE premiums that were paid for physical have been completely destroyed. When silver was $12 for most of the year, people were paying 15%+ premiums for physical. Now it is trading at a discount. By the numbers---90% at $12 is worth about 8.6x face, yet was very difficult to obtain for less than 10x. Now with silver at $17+ (12.2x FV), nobody wants it for even less than melt. So while paper appreciated 42%, physical has netted only a 20% return.

I know what the arguements are going to be, but knowing the past, wouldnt you have rather made 42% vs 20%? >>



Yes, but think about this, which will offer better downside protection? The physical, as buyers at these prices will not sell when it falls below $10 times face again unless there is a premium over spot.

cladking

<< <i>

I know what the arguements are going to be, but knowing the past, wouldnt you have rather made 42% vs 20%? >>




Then you realize that if the world wakes up sane someday the physical
can be worth far more and the paper might be virtually worthless. Who's
going to stand behind huge losses in paper? TARP?

They might prop the bank back up but they aren't going to pay the losses
on their silver shorts.

Looking at it more practically since there's little danger of widespread sanity,
The price can never go up as long as any entity can just print up more paper
until there is a physical shortage. If this situation is allowed to persist then
when the real shortage hits at some indefinite point in the future there will
be a serious, structural, and profound shortage of silver. Factories would have
to shut down for lack of metal. People would likely starve at some point. De-
manding physical moves this date up in time when there is more metal and
more wiggle room. It limits the ability of the banks to steal by printing metal.

The solution is to buy at lows and at discounts to the degree possible. The
spot price doesn't matter if you want an 1804 dollar either.

cladking

To say it another way;

Paper silver has its place as a gamble or an investment but you
can't make electrical contacts out of it and it will lose you a lot of
money if you're short or long and the price sky rockets. Paper is
for the fleet of foot and those who are aware of the dangers. It
is not safe for those who take time to make decisions or don't fol-
low the markets.

cohodk

What I see is return compromised by fear. Judgement compromised by fear. Knowledge compromosed by fear.

Fear causes irrational behavior.


Im not surprised by the lack of posting to this thread.

calleocho

When spot went to 9 dollars earlier you were able to sell silver eagles for 2 to 3 bucks over spot and quite possibly more.

SLV was worth just 9 bucks.

and there are also tax issues and comissions involved, those get expensive for a small timer who just buys a hundred bucks of silver everyweek.

Weiss

Your premise is similar to this one.

In my opinion, they are entirely different animals. I own some rare coins. The idea of owning a paper receipt for a percentage of a coin collection stored in a vault in another city or country does not appeal to me.

Ditto silver or gold ETFs. I have plenty of opportunity to make money in equities. I buy gold and silver as a store of wealth.

RedTiger

<< <i>UNG was actually trading at a 20% premium. Would it be nice to buy at spot and get a premium?


FC was right!! >>



Why didn't you address the issue? Most of the readers are not aware of the problems associated with UNG, the natural gas ETF. Perhaps you aren't either. The problem is that UNG attracted so much money, that UNG started to disrupt the natural gas futures market. The band-aid solution was to stop it from issuing new shares. That caused another problem, a 20% premium over fair value. Then they reopened the making of new ETF shares and the premium is evaporating. All of this happened this year.

A clear thinking mind can see that SLV and GLD could reach the same point, that SLV could attract so much money, that it disrupts the industrial silver market, and there will be distortions and problems and band aids and then band aids on top of band aids. When that bridge gets crossed, a lot could happen, such as extended trading halts, no more new shares, premiums, discounts, forced liquidations to restore order to the physical market, and other strangeness.

The bottom line is that ETFs are fine for a little trading money, for the short term. Not so fine for money that anyone wants to be sure to be able to rely on for the long term. For a lot of folks, that sure thing, is the entire point of precious metals exposure.

As I said in my first reply, both paper and physical have their proper place and time. Paper is fine for a little trading money for the short term. Physical is for the long term, for insurance against certain economic and political scenarios.

/edited for typos

fc

owning the physical metals is a good feeling but it can be taken too far i suppose.

i would rather have made 40+%.

it was nice being right about premiums coming down but sad being
wrong on the recent bump up ;-)

as for having physical for when crap hits the fan... i guess that depends
on your optimism for our country or lack thereof. I cannot picture
the dollar becoming worthless in my lifetime even with recent events.

jmski52

Personally I like the feel of greenbacks in my pocket. Isnt that what why we buy PM's in the first place. To make or save(preserve) money(greenbacks)?

Au contraire, I work to get paper in order to save bullion!

Buying bullion instead of SLV is only compromising return for fear if you think that the fear is irrational. To think that there is no reason for concern is to ignore both history and the current global dollar crisis. That, my friend, may be more irrational than being cautious about paper silver.

Here's to your superior returns!

cladking

<< <i>What I see is return compromised by fear. Judgement compromised by fear. Knowledge compromosed by fear.

Fear causes irrational behavior.


Im not surprised by the lack of posting to this thread.

>>



I buy silver because I believe it's hugely underpriced and likely to correct
in my lifetime. Paper doesn't make sense in this case. It might if these
markets were rational but silver wouldn't be so dramatically undervalued
if these markets were rational.

MoneyCollector

As my father always said: "you give 'them' your gold and silver coins, and they give you back some paper."

I have plenty of investments, but paper PM is not one of them.

I love to stack it up, play with it, feel it, clink it together and listen to it. Makes sense to me and I sleep well at night!

Randy

roadrunner

Those huge premiums back at $8 to $12/oz were more an abberation based on the 100 year deleveraging event that occured in the fall of 2008. And that time is now history. It made no sense that actual money like gold and silver got whalloped in a flight to quality. They are the definition of quality and it's why they are the only money mentioned in the US constitution. It didn't hurt that the boyz gave them a push off the cliff with a huge increase in derivatives and comex shorts in July 2008. The silver derivative's position actually doubled from an incredible $90 BILL to $190 BILL. That was more than a push! In fact the derivatives scheme and unwindings that the PM's should have protected one against were actually hurt because all those useless contracts were denominated in dollars. How ironic.

By the same token, gold miners with $BILLIONs in actual verified deposits in the ground fell by 65-85%....generally far more than the typical consumer company stocks with no underlying assets. Those valuations, as well as the $8-$10 silver made no sense and will likely never occur again in our lifetimes. It was right for the sellers of silver to ask those premiums because the price was engineered by the boyz club to fall to the $8 level, just as it was for oil to fall to $35. For the buying and selling I've done in silver from $13 to $17 there has been no real loss in premiums now that the market is back to sanity. In fact there has been zero loss in premium on what I bought at $13 and where it's at today. I expect little to no difference as well when it hits $19. And if the market should sell silver back to $10 again in a more orderly fashion, those "massive" premiums that existed in 2008 will likely not be there. Just a few weeks ago 90% premiums were up quite a bit due to a shortage of the material. Brokers in my areas were paying over spot to get it. Supply and demand works, in both directions.

I don't want to be the guy trading in SLV or GLD on the day the news leaks out that a significant number of those ounces are covered by derivative contracts...or that the shorts on the Comex are heavily naked and have been pulling gold from the ETF's. Having sell stops set won't help either when the rush to the exits begins. Paper gold or silver will do fine....until the day the above comes knocking. The question at that point will be how is how much premium over paper prices will you have to pay to get silver/gold in your possession. The big guys with the 100,000 shares of GLD will be removing their gold if they can get it out. That won't be bullish for the price of the ETF. It's also impossible to sell your GLD/SLV when your brokerage's computer system bogs down under heavy volume or the trading system just simply crashes one day for whatever reason (internet hit)? Or worse yet, what happens when they close the brokerage's doors and your shares are tied up or when a bank/trading holiday(s) is declared? Paper silver is not much help in those circumstances. Then it's cash, barter, bullion. It doesn't take an armaggedon scenario for the above to happen. In fact I think I think it's pretty realistic that some brokerages will go down in the near future and tie up their customer's assets for quite some time. Bank holiday(s) are coming. And many ETF's will go bust after being found to be fraudulent. I would be shocked if at some point down the road that SLV or GLD don't have a major shakeout due to "irregularities" in their accounting or for just plain fraud.

roadrunner

ttown

Paper silve just as the paper dollar really has no industrial uses. You may look as paper silver was the best option to convert to paper dollars but in my mind what it's showing is that physical silver will not follow paper silver down like it once did. The paper game is about to come to an end, good ride while it lasted.

roadrunner

That's a good and very simple point ttown that few tend to understand. The paper trade last year was indeed more profitable than the bullion trade because owners of bullion were not giving up their bullion on the cheap. Comparing paper silver to real silver is apples to oranges. On a similar future move such as occured last year it's just as possible that the paper trade loses out to the bullion trade. It's very similar to the fact that the paper derivative's trades made money on homes and other assets until the day they blew up...and were worthless or nearly so. Silver derivatives will eventually reach that stage. The ETF's (and probably the exchanges too) are full of derivatives parading around as real bullion. When the first sniff of real evidence gets posted in the media, how quick would you as an SLV holder bail out??

roadrunner

jmski52

It's very similar to the fact that the paper derivative's trades made money on homes and other assets until the day they blew up...and were worthless or nearly so. Silver derivatives will eventually reach that stage. The ETF's (and probably the exchanges too) are full of derivatives parading around as real bullion.

Good point, rr. They are still afraid to mark-to-market the paper mortagage derivatives. And that's very recent history, not just Weimar Era.