Silver Shortage Drives Up Prices Metal Jumps 22 Cents An Ounce In Wild Trading
As near as any analyst can tell, Thursday’s wild silver market ride boiled down to this: There wasn’t enough to go around.
The mind-numbing world of futures trading ricochetted with rumors. When all was bought and sold, silver finished the day up a healthy 22 cents to $5.57 an ounce.
Commodities traders told business journalists that huge brokerage houses like Salomon Bros. and Goldman Sachs were hoarding the metal in private stockhouses.
At Penaluna Inc. metals broker in Coeur d’Alene, broker Ron Nicklas said he had a very busy day as he watched the rumors flying about.
“The trick now is to see if the price of gold follows this rise,” he said. “Usually silver won’t rise beyond this unless gold follows the increase.”
Local mining companies welcome an increase in metals prices, whatever the reason.
Interpreting the reasons for spurts in the metals markets is difficult, in part, because there’s no trail to follow.
No actual silver changes hands in silver futures trading. The New York Commodities Exchange stores the silver, which gets delivered when companies buy it to make photographic film or other products.
The silver traders sell contracts on the delivery of that metal. Trouble is that there wasn’t enough metal Thursday to cover the contracts in New York and even in London, said Michael Simon of CPM Group Ltd. in New York City. Silver stockpiles are at the lowest levels since April 1988, he said.
Futures traders pay about 1 percent of the metals’ value to “lease” the silver in a futures contract. When silver became scarce, that fee rose as high as 7 percent, making trading more costly.
That, Simon said, helped contribute to the price of silver rising from around $5.20 an ounce last week to where it closed Thursday.
The higher lease rates got the arbitrage market interested in silver. In English, arbitrage is when something is worth one amount in one market, but more or less in another. Buying up the commodity at one price in one market and quickly selling it at the other price is an arbitrage.
Combine the lease rate rise, the shrinking silver stockpiles and some silver buying by big money funds, and the metal could quickly burst over $6 an ounce, Simon said. Maybe as high as $6.20.
, DataTimes