Let’s consider speculation and arbitrage, and look at what it really means when the cobasis is deeply negative, in that light. This is the case in silver.
Per the definition of cobasis = Spot(bid) – Future(ask), it means either that physical metal is being dumped on the bid, pressing it down, or that people are aggressively buying futures, thus lifting the ask in that market.
The price of silver has been falling all year, with a sharp correction in the first three weeks of August. The cobasis has been low and/or falling most of that time (though it has come up a little in the past few weeks). We suspect that both market actions are occurring in silver right now. That is, at times silver metal is being dumped in quantity in the spot market, and at other times paper silver is being bought aggressively in the futures market.
Who might be selling physical silver? The data does not tell us, but looking around at the world economy, we can guess that smaller inventories may be needed at manufacturers of electronics. People may be bringing their metal to “cash4gold” companies to get dollar cash to pay their bills. For whatever reason, in the world of the physical stuff supply is coming to market. In contrast, the demand for the paper stuff—futures—is still strong at the moment.
Readers may have a different experience—we would love to hear about it—but we see continued optimism in comments on investor sites, Facebook groups, etc. Surely, “the bottom is in” and as the prices of the metals takes off once again, silver will rise faster than gold.
Source Gold Seek