Why is gold and and especially silver not higher in price? I challenge you to find a place where you can actually buy small unit silver like Silver Eagles and Silver Maples at anything close to the spot price. Not a pool or investment account, but a transaction where the end result is you getting shiny bits of metal in your grubby paws. The official bid price is not telling the whole story. As I write this, the spot price for silver is 12.21, but the 800 pound gorilla of precious metals, Kitco will buy Silver Maples and Eagles from you at 13.56, or 11% ABOVE spot. For those of you unaware, when dealing in immediate settlement, a commodities broker usually buys at a certain percentage below spot, and sells at a percentage above spot. This is how they make money, regardless of the market price. I've never seen a broker buying above spot, and 11% above spot is crazy high. Normally, I would consider a broker who tried to sell to me at 11% above spot a rip-off artist (3 to 4% is more normal), but they are voluntarily paying that high a premium to get their hands on the stuff. So, just what's going on here?
The only sensible reasons I can think of for them doing this is either A) They have contractual obligations to provide physical metal to someone, maybe to keep a pool account solid and the premium they are paying is cheaper than any sort of penalty they would have to pay, or B) They have a very good reason to expect that silver will increase in price dramatically in the short-term. If you can meet my challenge, then you should be able to make a tidy sum in arbitrage. Good luck with that.