Forms of silverbullion have changed a lot in these years

Tag : silver bullion
Like gold, the relative prices for the various forms of silverbullion have also undergone some significant changes over the lastyear or so. As was the case for gold during the last review, therewasn't much to see in either the basic price chart or in the reviewof differences between the prices but, in this update, theseparation between physical bullion (in green) from both the spotprice (in blue) and the SLV ETF (in red) can be clearly seen below.
Note that, in the chart above, the green line now clearly rides "ontop" of the other two curves, whereas, it had been even with orbelow the other two curves for most of the last two years.

Looking at the differences between these three prices in 20-daymoving average form below (to filter out the noise) reveals that nearly all of the relative changes in silver prices can beattributed to the way CNI has been pricing their silver bars . In fact, the spot price compared to the SLV price (in blue) hasbeen relatively stable - up from just a few cents per ounce toabout 15 cents per ounce over the last year, roughly an increase ofabout 0.5 percent, which is in line with the fund's stated expensesof 0.5 percent (see the iShares website for details).

Questions that are repeatedly raised about the SLV inventory aside(see Ted Butler's latest commentary for more on this), these fees are actually quite a bargain whenconsidering the problems associated with storing large amounts ofsilver.
The reason for the big move upward in the 100 ounce bars at CNI (inred and green above) is simply due to a pricing policy change atCNI which does not necessarily exist elsewhere. Since I've ownedthe silver bars and the SLV ETF for some time now, I can easily getthe year-to-date performance for the two and, not surprisingly, thesilver bars are now up 30 percent in 2008, whereas, SLV shares areup only 27 percent.

This may or may not have something to do the recently reportedshortages in silver bars - I see that CNI now has silver bars forsale, whereas, it did not have any some time ago (see Volume III, Issue 12 ).

In talking to a coin shop dealer in Northern California last week,I learned a few interesting things, one of which was that groups ofcoin dealers do a lot of buying and selling between themselves, in effect, "making their ownmarket" and these market prices can move relative to spot prices (as shownabove) and relative to other coin dealers.

For example, every coin dealer I spoke with recently was payingunder spot for silver bars - from 30 cents per ounce under spot toalmost a dollar per ounce under spot - whereas CNI now buys forabout 40 cents over spot. Unfortunately, I now live almost 400miles away from CNI where the best prices for silver bars are to befound and may find myself making this trip for any future salessince the difference is so great.

[Note: As mentioned previously, I am still in a very long processof switching out some physical silver for SLV shares in my personalinvestment portfolio and, with the price of silver rising lately,I've been calling coin shops in Northern California but can't evenget close to the CNI price for silver bullion.]

Conclusion

Aside from the price offered for silver bars at CNI relative toother coin shops, there is nothing really shocking here in any ofthe charts. In fact, it is good to know that things are about whatyou'd expect - you can see the ETF expenses eating away at gains,albeit at a very reasonable rate of about one half of one percent.

As stated here many times before, physical possession remains mypreferred form for holding gold and silver bullion, however, thereare many factors to consider when making this very personaldecision and subscribers are again referred to the Buying Bullion article from earlier this year for details (see Volume III, Issue 5 ).

Overall, bullion has been a tremendous investment over the last sixor seven years and, since the model portfolio was formalized latein 2005, this category has gained 84 percent.