What does all this mean? Well, I think the backwardation reflects the market’s uncertainty of silver’s role as money. The chronic silver backwardation began on 8 December 2008, the same day I wrote about gold in backwardation, and silver was priced about $9.60. Currently silver is trading about $13.82. Predictably, the gold/silver ratio is narrowing. If the backwardation persists it will be interesting to see if silver’s price in illusory FRN$ continues rising.

In my opinion, as the great credit contraction grinds on and intensifies the commodity silver will reassert itself as money and eventually currency. As I mentioned during the interview with Contrary Investors Cafe what would be really interesting is if the central banks decide to start hoarding silver!

In the meantime it may behoove those who are bullish towards silver to increase the pressure on physical silver delivery. For example, I purchased some beautiful Austrian philharmonics at the Cambridge House Investment Conference and Silver Summit over the weekend. The beautiful coin cost $20 which was an amazing $5.50 over spot.

While there are cheaper ways to purchase physical silver bullion, like GoldMoney, these huge premiums over spot beg the question: What is the real silver price? With the specter of counter-party risk driving silver into backwardation if there is a failure to deliver then it will likely cause the silver price to shift from the COMEX just like a failure to deliver would cause the gold price to shift from the COMEX.