A Hard look at Gold, Silver Premiums
derryb
Posts: 36,958 ✭✭✭✭✭
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
0
Comments
I'll take the silver swings for my mental 'play' though - haven't sold anything yet, don't plan on it outside of strict dire circumstances - but I like thinking about the swings with silver better.
<< <i>A Hard look at Gold, Silver Premiums >>
It's a good, well-thought-out article (which is why I was surprised that they referred to 'spot price' as being the futures price; technically, spot price is for delivery within a couple days, and is *based* on the futures price, but not necessarily the same).
What they don't do is:
[1] Account for price shopping. They quote a current 'average premium' of $1.09/ounce for 1-ounce generic rounds (6.5% over spot), but if you look around you can get them for $.79/ounce over spot (4.7%).
[2] Account for people who are fine with any bullion. Yeah, a 36% premium sounds scary -- but the premium they state for generic was 24%. And if you shopped around, it was probably much, much lower. Silver wasn't scarce at that point, unlike the March/August 'retail silver shortages' a couple years ago.
<< <i>Many people do not seem to actually want the precious metal only. It has to be in a form of their choosing. I 've been unable to sell a $5 gold coin at a 1% premium above melt (spot times actual gold content) because it's an unpopular US issue and doesn't have OGP. Just a coin and capsule. So I draw the conclusion that folks want the attendant gew-gaws as much or more than the gold although they say differently. Just an observation. >>
Sounds like a modern gold commemorative.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
I knew it would happen.
<< <i>I always thought that spot price was the futures price of the current delivery month, or in essence the price at which physical will change hands at the current market. >>
The spot price is what people will buy/sell for with delivery within a couple of days (I.E. 'on the spot'). That's the OTC (Over-The-Counter) market.
The price people are willing to pay, though, tends to come from the futures market. That's because the prices of transactions in the OTC market are typically not made public with any frequency (as far as I can tell, except the London Fixing and such that are 1-2 times daily). The futures market, though, gives out buy/sell prices multiple times a minute. So if you're buying or selling silver/gold, it only makes sense to check out the futures market to see if they have moved since the last OTC quote. Then it just becomes easiest to use whatever the futures price is.
So yes, the spot price is typically the same as the futures price of the current delivery month. And if you check out the online prices, that's usually what you see (the price there *is* the futures price, since there is no spot price to use minute-to-minute). But if the futures market and the physical market got separated enough, the spot price could vary from the futures price of the current delivery month.
Like last Friday, when there was a 1.5% dip in the spot price within 12 or so minutes, that was because there was a 1.5% dip caused on the futures market. If everyone selling physical gold/silver decided that they weren't going to lower their price 1.5% just because someone dumped some paper silver/gold on the futures market (where about 1,000 ounces trade for every ounce delivered), then the spot price would be different than the futures price.