Saturday, February 05, 2011

Near Zero Contango in COMEX Silver Futures

HOUSTON -- We are in the process of poring over the data from this week, and just below is something we are going to be hearing a lot more about in the coming days and weeks.  As of Friday, February 4, 2011, there was near zero contango in the COMEX silver futures market. 

More in a moment, but first, here is this week’s closing table. 


Note the very strong outperformance of silver to gold this week.  There is likely a very good reason for it. 

No Contango in Silver

Contango, where the spot price of a commodity is lower than the following futures contracts, is the normal condition in the precious metals futures markets. Contango is a sign that a commodity is in ample or adequate supply. 

Backwardation means that the cash or spot price is higher than the futures price for the same commodity.  Backwardation occurs when demand for immediate delivery outstrips the market’s ability to deliver the commodity.  Backwardation occurs when there are too few sellers of the physical commodity to accommodate all of the actual buyers, so a near-premium develops to compensate the sellers willing to part with metal in return for taking delivery later.  

When there is zero contango, it means that there is not even one futures contract that is higher than the current spot or cash price.  Zero contango and structural backwardation (where each succeeding futures contract is lower for most or the entire strip) is also known as an “inverse carry” market because the futures no longer compensate holders for the cost of carry, capital, storage and insurance relative to the spot price.


We cannot overemphasize how unusual and rare it is to have zero contango in the silver futures strip.  As of the close on Friday, the spot price for silver was $29.07.  The closing price for the December 2015 futures contract was $29.02 or 5-cents less, repeat less, than today’s spot price – for delivery four years hence.  The few futures contracts that were above the spot price were all within two cents of it.  For all intents and purposes, silver is in a zero contango situation now.  Just below is the closing strip from Friday, February 4, courtesy of


That means that there is heavy demand for immediate delivery silver.  It means that silver players are earning a premium to sell physical for delivery now and to wait for the return of their metal until the March contract, the near active contract, which is trading at 1.6-cents lower than spot (blue circle).

Full-blown backwardation has arrived in the COMEX silver futures market.  Backwardation suggests that competition for whatever metal is available is heavy and most analysts consider silver backwardation to be a decidedly bullish condition.

By the way, as of Friday, there was only enough silver metal in the Registered category in COMEX depositories to accommodate 8,680 COMEX contracts (43.4 million ounces), or about 6.6% of the 130,601 contracts open as of Thursday’s tally.  (Another 59 million ounces was listed as “Eligible” and some of that metal could conceivably be coaxed into the Registered category at some price.  Some of the Eligible silver is likely already committed for other purposes and is merely stored in the COMEX system awaiting delivery.) 

Evidence of tightness in the silver market continues to surface in other words. 

In addition to the near zero contango in silver, we also noted some interesting developments in the commitments of traders report just released Friday. We plan to mention some of them as well as our own trading intentions in the notations in our linked graphs on the subscriber pages by tomorrow, Sunday at 18:00 ET.  Vultures, (Got Gold Report subscribers) please log in and navigate to the GGR Charts section in the subscriber pages for more then.  

As a reminder, for up to the minute availability for the real deal physical silver and gold, CMI Gold and Silver is our first choice.  Give them a call (Toll free 800-528-1380) or stop by their excellent web site by clicking on the CMI link above and to the left. 

Finally, we urge all our readers and Vultures to catch the video presentations at the just-concluded Cheviot Sound Money Conference from January 27th.  The presentations have been made available at this Gold Anti-Trust Action Committee (GATA) link:   We consider it well worth the time.  Be sure to have a note pad at the ready.   

That is all for now, but there is more to come.  


The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter

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