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The volatility in the precious metals markets continued on Thursday, although this time, fortunately for gold and silver investors, today’s moves were to the upside.

The gold futures are currently up $93 to $4,158.

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The silver futures are up $1.18 on the day to $48.87.

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And the silver spot price is up 71 cents to $49.10.

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As you might have noticed, with the futures being up more than the spot price, the London/New York spread has continued to narrow to the current level of 24 cents (spot still trading over futures).

I had wondered if the spread narrowing would lead to a cessation of the outflows from the Comex, although so far that has not occurred, but I did get a better understanding of why.

What’s basically happening right now with the arbitrage between New York and London is that traders or banks that are moving the metal sell spot in London, buy the futures in New York and take delivery, and borrow silver OTC to deliver against the spot short position that was initiated in London.

When the spread surged to the $2.50-$3.00 area, there was enough edge to transfer metal back. But part of the reason that it got so wide was that the lease rates also surged, which represented an additional cost to those trying to capture the arb.

Yet now, even though the spread has come in considerably, metal is still leaving the Comex, and it’s still profitable to do so because the lease rates have also come in substantially. So there’s that additional leg in the arb, which is why it’s not just as simple as looking at the differential in the London/New York spread.

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Silver On Way Back Down To Low $40s Or $30s?
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Gold & Silver Pummeled As London/NY Silver Spread Narrows