Here’s More On The “Backwardation” Story
Patrick A. Heller writes that COMEX Silver Inventories Continue To Decline. Since June 16th, there have been significant withdrawals from Comex and elsewhere, by investors and depoitors to take delivery on expiring Silver contracts.
Rather than being a general decline from all depositories, the run is focused on two specific depositories: the Scotia Mocatta subsidiary of the Bank of Nova Scotia and HSBC, the British bank formerly known as Hong Kong Shanghai Banking Corporation. These two depositories are generally suspected of having insufficient physical precious metals in their vaults to meet their contractual obligations. […] …it would appear the COMEX is having difficulty meeting its contractual obligations. Under its terms of operation, the COMEX is entitled to unilaterally settle such contracts for cash or for shares of a silver exchange traded fund instead of physical silver, but I haven’t heard of this occurring on a large scale yet. That may yet occur before the end of July if their ability to deliver physical silver becomes a major problem.
When investors and traders fear supply problems, prices of nearby futures contracts sell higher that the farther out contracts, thus backwardation.
The July 16 spot month price was higher than for all future 2010 contracts.
Heller concludes
Delivery problems just keep getting worse. If you think you own silver in any form other than physical forms in your direct possession, or in segregated storage (not unallocated or allocated storage) under your name, you may not have much time to avoid losing some or all of your investment. Protect yourself now.
BTW, in a recent article by Bill Murphy at Le Metropole, we learn that thirteen of the 41 commodities listed in the WSJ are in partial or complete backwardation. There is strong physical commodity demand, almost across the board.
Tags: Backwardation Silver COMEX Scotia Mocatta HSBC futures contracts Delivery Problems
See more Mover Mike posts on Backwardation.
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