By James Turk

September 10, 2009 - After being in and out of backwardation several times this year, silver has again slipped into backwardation. There are however, some notable differences this time.

Early this year the backwardation was mainly in London. In recent months the backwardation has been occurring mainly in New York, indicating the shortage of physical metal is now on this side of the Atlantic.

More importantly, during the backwardation in London early this year, which was an unprecedented 47 trading days in a row, the silver price averaged $13.02. Silver in other words was relatively cheap, so a backwardation at those prices is perhaps somewhat understandable. Buyers of physical silver wanted to back-up-the-truck and buy at those low prices.

Silver today closed in New York $3.63 above the average price from the London backwardation earlier in the year. So silver is no longer as cheap as it was then. Also, from its August low only 15 trading days ago, silver has risen 20.0%. That it today still slipped into backwardation is simply staggering. Clearly, there are buyers who want physical silver, and are willing to pay for it.

Here are the front month Comex settlement prices for today.

Importantly, the bullion banks that typically arbitrage the various markets have not stepped in to deliver physical metal and buy it back in the future at a lower price, while also avoiding storage costs in the meantime. Either the bullion banks don’t have the available physical silver to arbitrage, or they are unwilling to take the risk. In either case, the conclusion is a bullish one for silver. The possibility of a short squeeze in silver cannot be ruled out, particularly given its very bullish chart picture.

Full article: http://www.fgmr.com/silver-september-10-2009.html