RE: Standing for Delivery....pbwong. mouserman offered an excellent explanation of the crime. I think I understand your dilemma and hope to offer some additional reason for the lack of arbitrage opportunity.
“what's to prevent me from taking delivery of the physical by holding the futures contract till delivery and actually accepting the bullion?? Isn't this an arbitrage I could take advantage of?”
The very first thing that would prevent you from taking delivery is your access to dollars. A 5,000 ounce contract would require more than 200,000 USA dollars to satisfy. Most future traders don’t intend on participating in delivery and will offset their position well before the settlement date. Speculators are in it for the leverage as trading with margin allows one to enjoy much greater gains.
Another thing that may prevent you from demanding delivery is the exchange itself. I have read many reports of the COMEX discouraging delivery and even offering premiums as high as 30% over the contracted value. Only recently I have also heard that the COMEX won’t deliver on ‘mini’ (1,000 oz) contracts at all. This of course would be the most likely contract for the individual investor to want delivery of.
It’s my belief that the exchange only wants speculators to provide liquidity while reserving deliveries for the corporate hedgers that may or may not have manufacturing needs. Hedgers aren't subjected to the margin requirements that are speculators.
“The last bears video talked about two silver prices but I just don't understand how this would not be arbitraged away. What am I missing?”
The exchange has long been respected as the cheapest source for Silver. To take delivery you simply open an account with a broker, and then you contract a price and delivery date. Finally, you submit the amount required and make delivery arrangements. Upon taking delivery, your paper Silver transforms into physical. There has always been a gap between the wholesale price of 1,000 ounce bars and the many retail versions of Silver. Recently, the gap has increased.
Exchange warehouse inventory is dropping as demand overwhelms supply. Others also see the arbitrage opportunity and their demand is sometimes met with warehouse stock. The video bears posted a prophecy today that the gap between the two Silver prices will increase. I reason this to mean that as the reported exchange inventories continue to deplete, the market will continue to put an increased value on the physical Silver and doubt will increase in the ability of the exchange to make delivery.
I hope that helped.
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mineshack
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