By now you all know the premiums in Shanghai for silver are 6%. The question is: "Why isn't SLV being raided and sold to the Chinese?". Is it too expensive to ship it over?
Shipping gold and silver costs money. 80% of that money is insurance, so I'm going to neglect the actual shipping costs.
I found an interesting post here.
To ship 100 oz. gold, requires 4 packages, because you can only insure so much at one time, not more than $25,000 worth. $45 each package.
Total cost to ship 100 oz. of gold = $45 x 4 = $180
To compare, it costs $20 to ship 100 oz. silver; $8 for the one box, and $12 for the insurance. Insurance is much less, due to the lower value.
Gold is 9 times as expensive as silver to ship, on an ounce per ounce basis at current prices, and more inconvenient, due to having to break down the packaging into 4 boxes.
But what about on an equivalent dollar basis, as Antal was saying?
What does it cost to ship $100,000 worth of silver verses $100,000 worth of gold?
In the real world, you can actually fit 7 silver bars in one bucket, to save on packaging costs.
7 silver bars x 6.8 pounds each (12 ounces per troy pound, 16 regular ounces per regular pound, but 14.6 troy ounces per regular pound) = 47.6 pounds, which is well under the 70 pound limit for the Post Office for heavy packages.
Each package of 7 bars costs about $65 each to ship.
5600 ounces / 700 ounces = 8 buckets.
8 buckets x $65 = $520 to ship, which is about half the cost of shipping each bar by itself.
$520 / $180 = 2.8! Much less than 15, much less than 56!!!
100 oz. gold x $876/oz. = $87,600, which costs $180 to ship. (Or .2 of 1%)
5600 oz. silver x $15.83 = $88,646, which costs $520 to ship. (Or .6 of 1%)
Silver costs about 2.8 times as much to ship, as gold, considering equal dollar amounts, and both can be shipped for much less than 1% of the cost of the metal itself.
So this means that shipping silver costs 3 times as much as gold for $100,000 worth of the physical metal.
And it costs $180/100 oz gold and $520/5600 oz silver (in 2008).
Let's calculate it for 2013.
100 oz gold = $120000. We need 5 packages or $45 x 5 = $225 to ship gold.
7 bars = $65 shipping costs. 6000 ounces / 700 ounces = 8 buckets.
8 buckets x $65 = $520 to ship silver.
Conclusion: in 2013 it costs $225/100 oz to ship gold and it costs $520/6000 oz to ship silver. Shipping silver costs twice as much as shipping gold for $120000 worth of the physical metals.
Now comes the fun part.
I know that the Shanghai price of silver is 6% higher than the SLV price of silver. Will it be a good idea to ship over this silver to China and sell it there?
Let's sell 100 tonnes of silver to the Chinese, which is about $75 million. I get my money and now I buy SLV with that money. It costs only $71 million in London. Then I take delivery and ship it to the Chinese. It would require 5039 buckets. Shipping costs are $383594 (80% insurance, 20% shipping).
My profit would be $3.8 million with a 5% profit margin at the 6% silver premium. If the silver premium goes back under 1%, then I will lose money.
Looks like a great deal to me. I have no clue why this raid on SLV isn't occurring. I'm unaware of other costs like warehousing, fees, handling and taxes though... And shipping 5039 buckets is a bit too much for me to handle though.
This also reminds me of eBay, people sell stuff there at very high prices. Sometimes the item gets sold (by a dumb buyer), then the seller gets the money and buys the product cheaper from somewhere else and sells it to the dumb buyer. Then the seller gets to receive the arbitrage margin as profit.
EDIT: It seems that silver shipped from Hong Kong to China has 17% value added tax, while gold doesn't. That's the reason why nobody is shipping silver to China, only gold. And that's why SLV is non-raidable unless China removes the VAT.