# Silver Swap Rates and Forward Curve The 1-year silver swap rate is -7.9% after adjusting for interest rates. This is the smoking gun of physical shortage. ## What Is a Silver Swap Agreement to exchange physical silver today for physical silver in the future, plus a rate. Example: You own 10,000 oz physical silver. Sell today for $700,000 cash (at $70/oz spot). Agree to buy back 10,000 oz in January 2027. Forward price should be $73-74/oz. ## Why Forward Should Be Higher (Normal) Forward Price = Spot + Storage + Insurance + Interest Forward Price = $70 + $0.50 + $0.30 + ($70 × 4.5%) = $73.95 Normal forward premium: +$3.95/oz = +5.6% ## Current Broken Market Spot silver: $72/oz. 1-year forward: $66.31/oz. Forward discount: -$5.69/oz = -7.9% You LOSE $5.69/oz by locking in future delivery. This should not exist. ## The Arbitrage That Should Work Buy physical $72, sell 1-year forward $66.31, store silver $0.80, invest cash at 4.5% = earn $3.24. Math: Cost $72.80 vs Revenue $69.55 = Loss $3.25/oz = -4.5% Why doesn't arbitrage eliminate this? **You cannot buy physical silver at $72 to do this arbitrage.** ## What -7.9% Really Means Industrial users: "We don't care if we lose $5.69/oz. We NEED silver in 12 months for our production line. We'll lock in delivery at any price." In functioning market, arbitrageurs would buy physical and sell forward until the opportunity disappears. The fact -7.9% persists means physical silver is not available at any reasonable price. Current 100-day average: -4% and declining. Latest reading: -7.9%. The downtrend confirms stress is increasing. ## What This Predicts Deeply negative swap rates predict future price spikes. If you're losing 7.9% to lock in delivery, you're betting silver will be worth much more than $72 in a year. The forward curve is telling you fair value is $100-120+. Combined with [[Silver Lease Rates|8.5% lease rates]] and [[Shanghai Silver Premium|12% Shanghai premium]], the message is clear: physical silver is worth materially more than $72. Links: [[Silver MOC]] | [[Silver Price Discovery - Paper vs Physical]] --- #silver #firstprinciple #markets