In time, their transactions would eventually eliminate the backwardation. But the backwardation has not been eliminated. Thus, given that the backwardation has remained for 38 days, one can only conclude that there exists an acute shortage of physical silver.

Backwardation is an abnormal state for the precious metals, and markets do not tolerate abnormal states. Arbitrageurs step in to profit whenever markets create unusual opportunities, like the one now existing in silver. But the backwardation prevails. No one is stepping in to sell physical silver in exchange for future delivery, so there is only one possible conclusion. There is not sufficient physical silver available at current prices to meet demand. So unless the shorts can somehow come up with the physical silver they need to meet their obligations to deliver and thereby relieve the backwardation, the price of silver needs to climb higher. It needs to rise high enough to induce holders of physical silver to sell their metal, which the shorts need to buy to meet their obligations to deliver.

There is of course another alternative. The shorts will simply default. There is much precedent for this alternative. For example, in August 2006 the London Metal Exchange declared in effect a force majeure on outstanding nickel contracts, which in essence enabled the shorts to default. Its press release stated: "The London Metal Exchange announced that the Special Committee has imposed a backwardation limit...in the nickel market and that there will be a suspension...in respect of those with nickel positions. Commenting on the announcement, Simon Heale, LME Chief Executive said: 'Nickel stocks are at historically low levels and we now have a genuine material shortage.'" Evidence today suggests there is a genuine material shortage in silver.

Rumors abound in London in particular about the shorts being late in meeting deliveries. So the present backwardation is not surprising. It is in effect a confirmation of these rumors, but it also shows that promises to deliver are being increasingly doubted. In other words, people who hold physical silver are not willing to exchange their metal for some paper promise, nor should you. Hold real physical silver; do not accept any paper substitutes like certificates, pool accounts and ETFs.

There are only two ways to own physical silver. Buy it and store it yourself, or buy it and have someone store it for you like we do in GoldMoney. As of February 27th, GoldMoney was storing 14.9 million ounces of silver in addition to 12.1 tonnes of gold owned by its customers.