Though bastardized into various long/short stratagems, arbitrage traditionally means the simultaneous buying and selling of the same asset trading at different prices on different markets. In theory the transaction is as close as one can come to a risk-free trade. If that sounds like something in which you'd be interested in, TheStreet.com's Alix Steel and I have a trade for you:
1. Go to Kitco.com and buy a 100 oz. bar of silver for $3,706
2. Follow some simple steps to smelt your silver in a regular microwave
3. Pour your molten silver into homemade 1 oz. molds... carefully
4. Sell your homemade 1 oz silver bars on Ebay for $43.75 per
There will be some start-up costs associated with creating your at home smelting operation, among which are buying the ceramic, industrial grade silver ladles and possibly a new microwave or two, but we're talking about 18% gross margins. Not too shabby in a range-bound stock market.
Anyway, Alix reports that buyers are choosing to own physical silver, as opposed to the popular Silver (SLV) etf or mining stocks because of fears of the stability of equity markets as a whole. Demand for physical was highest during the silver rush earlier in 2011. At the heights of silver stampede, the premium for physical silver was as high as 16% over what could be bought in the pits a number drifting under 10% at the moment, according to Ebay (EBAY) (NB: Ebay research does not include my ingenious at home smelting plan).
Steel says buyers of physical silver tend to be hoarders rather than traders, and are given to buying higher as fear increases. In a small way this enhances bullish arguments for silver due to the scarcity created when more people are taking silver out of the marketplace.
Yes, the at-home smelting idea is impractical for most. Regardless, the persistent spread between the price of physical versus contracts suggests one of the main drivers in the demand for precious and semi-precious metals (a currency in a world of ever-devaluing currencies) remains in place.
Are you hoarding/buying silver coins? Let us know below or via email: email@example.com.