physical silver market decoupling from SLV?

[molecular]

Hey guys, maybe someone can answer some questions I have about the silver market:

1.) why do I pay about 35% 29% above SLV (I look here: http://www.kitco.com/charts/livesilver.html) for physical silver at my local dealer (include 7% VAT (!!)) for 999 silver coins, and doesn't this mean the physical market is already decoupled from the paper market?

2.) Some people say SLV is a "slight scam" and you might not get your silver when you ask for it. Instead you might just get "your money back". Is that true?

3.) Some say the current drop in silver price is due to loss of confidence/trust in SLV (people (institutional investors, hedge funds, "normal" people) waking up to 2.) ). Does this sound like it could be the case?

4.) If, as some say, the physical silver will decouple from paper silver at some point, how would that go down?

sorry for slight off-topic post, looking forward to answers...

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[apetersson]

you have to look at a number of aspects here.
first, who said that the SLV price is coupled with a silver delivery?
the "kitco" price is a price where producers, speculators and buyers agree on a "contract" for a big delivery. (i am not sure how big exactly a contract is, i think several thousand onces)
the "SLV" price is an ETF which tries to emulate this price.
as i understand the SLV should shrink by about 0,5% each year due to handling costs, which are deducted from the total reserves. also, it is possible to take delivery if you hold a big amout of SLV shares, and aquire silver from them.

second, the real delivery of physical from a mint incurs additional cost, mintage, shipping, insurance, handing and TAX. you will get back most of this extra cost if you resell phyisical, also the 7% tax. AFAIK you must never pay the VAT tax twice on the same good.

[kgo]

For (1), it's because you're not buying 1000 oz bars, which is what are exchanged on the market.  You can either think of it as a bulk discount for buying 1000 oz, or that there are a bunch of middle-men involved in the creation of a 1 oz coin.  But 35% still seems high.  My local dealer currently adds $5 on top of spot, so I paid 17% when silver was at 29.  You might want to shop around.

For(2), SLV isn't a scam.  They actually hold silver.  They're not a derivative, like the paper markets.  But you're not buying the silver.  You're buying a share in an ETF that holds silver.  That means that you can't have them send you silver, you can only cash out your share for money.  But if you're worried about a mad-max collapse of society, or even hyperinflation to the point where people won't accept paper money (see Zimbabwe), then SLV would be less useful than physical silver.

[SolarSilver]

For(2), SLV isn't a scam.  They actually hold silver.  They're not a derivative, like the paper markets.  But you're not buying the silver.  You're buying a share in an ETF that holds silver.  That means that you can't have them send you silver, you can only cash out your share for money.  But if you're worried about a mad-max collapse of society, or even hyperinflation to the point where people won't accept paper money (see Zimbabwe), then SLV would be less useful than physical silver.

I think you are confusing SLV (an ETF) with PSLV (a trust that actually holds silver). I have more 'faith' in a trust than in an ETF. SLV is hugely leveraged and thus an accident waiting to happen. Ironcly when it collapses, it will drag down all the paper silver prices, creating huge differences between the paper price and the premium people will pay for physical silver. 

[mila]

hi, i checked 2 dealers in germany and the price is not so dramatic (17.5 & 25 % over spot, which means 10.5 or 18 % if vat considered).
the p&p would correct the prices one more time but over all your dealer seems to charge you for something extra.
the 10-15 % extra seems fair for minting 1oz coins. paying vat sucks. i guess you're in germany. austrian pay 19% silver vat even for silver currency coins.

edit: http://www.gold-dreams.de/themes/kategorie/index.php?kategorieid=80 http://www.edelmetall-handel.de/silber/bullion-coins.html

[kgo]

For(2), SLV isn't a scam.  They actually hold silver.  They're not a derivative, like the paper markets.  But you're not buying the silver.  You're buying a share in an ETF that holds silver.  That means that you can't have them send you silver, you can only cash out your share for money.  But if you're worried about a mad-max collapse of society, or even hyperinflation to the point where people won't accept paper money (see Zimbabwe), then SLV would be less useful than physical silver.

I think you are confusing SLV (an ETF) with PSLV (a trust that actually holds silver). I have more 'faith' in a trust than in an ETF. SLV is hugely leveraged and thus an accident waiting to happen. Ironcly when it collapses, it will drag down all the paper silver prices, creating huge differences between the paper price and the premium people will pay for physical silver. 

I got my info from wikipedia:

http://en.wikipedia.org/wiki/Silver_ETF

Which lead me to believe they had plenty of silver.  But if they're leveraged please ignore anything I said.

[kgo]

From what I see here:

http://us.ishares.com/product_info/fund/overview/SLV.htm

SLV has 322 million shares outstanding, and 313 million ozt of silver in storage.  That doesn't seem too horribly leveraged.

If I'm missing something, let me know.  I'm trying to figure out these paper markets myself.

[SolarSilver]

From what I see here:

http://us.ishares.com/product_info/fund/overview/SLV.htm

SLV has 322 million shares outstanding, and 313 million ozt of silver in storage.  That doesn't seem too horribly leveraged.

If I'm missing something, let me know.  I'm trying to figure out these paper markets myself.

ah the sweet conspiracies:

http://implode-explode.com/viewnews/2011-12-17_TedButlerSLVNakedShortPositionNearRecordHighs.html

For those not familiar with this skullduggery, the big "trusts" like SLV and GLD have a sort of "loophole" where the trustee can issue new shares even before they acquire the metal to back them. This is the same as naked "short selling" of the shares -- selling shares you do not even have, and have not even borrowed from someone who does have them! The upshot is, this (by definition) ends up depressing the price, in a situation where the trust going out and buying more metal should be BOOSTING the price. So it is actually a "double-whammy" effect of price suppression.

[molecular]

hi, i checked 2 dealers in germany and the price is not so dramatic (17.5 & 25 % over spot, which means 10.5 or 18 % if vat considered).
the p&p would correct the prices one more time but over all your dealer seems to charge you for something extra.
the 10-15 % extra seems fair for minting 1oz coins. paying vat sucks. i guess you're in germany. austrian pay 19% silver vat even for silver currency coins.

edit: http://www.gold-dreams.de/themes/kategorie/index.php?kategorieid=80 http://www.edelmetall-handel.de/silber/bullion-coins.html

I have to correct my original post: my dealer currently charges €29 (USD 37.88) for a 1 oz maple leaf. That's about 28.5% above spot (using USD 29.5 as spot price).

Still high it seems, so I'll look for another dealer.

Thanks for your info.

[S3052]

I personally do not think anyone need to rush to buy Silver. I will pick them up when we have silver prices below 10 $.

[molecular]

I personally do not think anyone need to rush to buy Silver. I will pick them up when we have silver prices below 10 $.

You where correct on silver before (May this year?), if I recall correctly. However, past performance is not indicative....

Thanks for your appraisement.

[S3052]

I personally do not think anyone need to rush to buy Silver. I will pick them up when we have silver prices below 10 $.

You where correct on silver before (May this year?), if I recall correctly. However, past performance is not indicative....

Thanks for your appraisement.

It's true, I mentioned that Silver is going to top in May an followed up on http://www.bitcoinbullbear.com/stocks-metals-etc.html in August and September that it's going down even more.

[StewartJ]

Hey guys, maybe someone can answer some questions I have about the silver market:

1.) why do I pay about 35% 29% above SLV (I look here: http://www.kitco.com/charts/livesilver.html) for physical silver at my local dealer (include 7% VAT (!!)) for 999 silver coins, and doesn't this mean the physical market is already decoupled from the paper market?

2.) Some people say SLV is a "slight scam" and you might not get your silver when you ask for it. Instead you might just get "your money back". Is that true?

3.) Some say the current drop in silver price is due to loss of confidence/trust in SLV (people (institutional investors, hedge funds, "normal" people) waking up to 2.) ). Does this sound like it could be the case?

4.) If, as some say, the physical silver will decouple from paper silver at some point, how would that go down?

sorry for slight off-topic post, looking forward to answers...

These are all good questions to ask.

My simple answer to you is this:  Playing the SLV silver market and the physical silver market are two very different things.

The SLV/ETF is a day traded exchange market that may be manipulated, that may be shorting silver and it is very volatile. The Silver price here tend to follow Golds Prices ups and downs. If you believe that precious metals are going to go up, that they are a hedge against the uncertainty in the global economy it may not be a bad play. The problem is can we trust Silver Paper? Do they actually have the silver to deliver?  You should have some reservations, in light of MF Global Shenanigans, to trust the Silver ETF market or any paper exchange for that matter.

Now, on the other hand, buying and holding Physical Silver for the long run, might be a much safer and wiser hedge against the declining value of the dollar.  There is much more trust in investing in Physical Silver...coins, bars and rounds that you can touch and feel, and which can easily be purchased with online dealers or on eBay or even with the Bitcoin to Gold/Silver dealer, Coinabul.

The bottom line for me, for my investment in Physical Silver, is that the fundamentals of owning Silver are just to good to pass up. It's far undervalued for all the worth it brings... because of it's industrial use in electronics, it's scarcity on the planet, and its history as a currency since ancient Roman times. But I will not go near SLV/ETF paper stuff.

[Fizzgig]

As more institutions fail, counter-party risk will cost more. Don't give your money to financial institutions, they will pool your money, manipulate prices downward, then take the loot when their backs are against the wall. This is what happened at MF Global right before they went bankrupt, will the customers (including farmers) get their $2 billion back? Probably not.

Get solidly positioned with no counter-party risk, it will make more sense when another war breaks out and we have a few more high profile bankruptcies.