Silver Premium Discrepancy Ripe for Arbitrage?

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(Edited)

The massive rise in silver spot price over the last few months has caused quite a bit of chaos in the futures markets. It's at a level we haven't seen before, so anything could happen at this point. It's an uncertain market with lots of variables in play all at once.

The biggest variable in play right now is the premium discrepancy. In the West, we have the COMEX in the US and the LBMA in London dictating prices for metals. In the East is the Shanghai Exchange. There's typically a small price discrepancy between the East and West markets, but it's typically small. The premium has increased these last few months, to the point that the Shanghai Exchange has anywhere from a $5-8 premium compared to the markets in the West.

(Source)

In theory this leaves a window of opportunity for traders in the East to buy cheaper from the West than they can get locally.

(Created with Bing)

I think this may lead us to see a see-saw effect in the West, as the East buys out silver from the US and London. Once either the COMEX or LBMA put a halt to this, I think we'll see more of a continuous increase in price. It's all in theory at least, since a conflict between the US and China, or any other interruption to silver supplies could introduce new variables that have the potential to cause a lot of price fluctuation. It's anyone's guess what will happen at this point, but it's clear we're seeing price discovery in the markets. It'll be interesting to see just how far silver price goes before we see a correction.

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(Edited)

This is one time I wished I owned a C-130 Transport plane and rent it out to Metals Traders in New York at a nice fee. Arbitrage works only if there is a ready inventory of silver to get a hold of rather than another paper promise weeks later.
!PIMP

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Right? You could make some good money that way.

I doubt most are taking delivery, but I wouldn't be surprised if there are a handful of big players taking advantage.

!BBH
!PIZZA
!ALIVE

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I don't understand futures contracts in general. I saw a story the other day about that Kalshi platform and I just can't wrap my head around it.

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It's basically gambling and guessing what prices will do short-term and long-term. Very few people can actually take delivery of the physical metals because of the price requirements, transportation, security, etc.

!BBH
!PIZZA
!ALIVE

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