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