Widening gap between physical and paper silver prices

Silver bullion remains in tight supply at coin dealers across the country with reports of a growing "spread" between "paper" prices on the spot market and "physical" prices at coin dealers. The chart below shows how extreme theses spreads have become.
As part of the investment service Iacono Research, prices for both gold and silver in various forms have been tracked for some time now, primarily to see how well the ETFs followed the spot price and the price at coin dealer CNI (California Numismatic Investments) where I've made many purchases over the years.

Never has anything like this been seen before.

As shown in the chart, based on the weekly closing prices going back over two years, there is a growing spread between the coin dealer buy price and both the iShares Silver Trust ETF (AMEX:SLV) price and the spot price (London PM fix).

This spread is now $1.00 an ounce!

Note that the chart above uses a five-week moving average in order to remove some of the noise from the data series and that there are natural discrepancies in these three data sources because prices are determined at three different times of the day.

The London PM fix occurs early in the day in the U.S. whereas prices at coin dealer CNI are determined using the New York close at 1:30 PM EST and the silver ETF trades throughout the day, settling at 4 PM EST when markets close in New York. The thinking goes that, over time, all of the late-Friday activity should average out and the underlying trend should be revealed.

The trend over the last month or so is striking, even more so when you look at the raw weekly data without the five-week moving averages as shown above. The spread between the price of 100 ounce silver bars (divided by 100) versus the spot price in London (the green curve in the chart above) is as follows:
It's important to remember that this is just one coin dealer, but they happen to be one of the biggest coin dealers on the West Coast. You can see their prices for yourself by going to their bullion page.

Considering that they used to sell silver for about 20 to 40 cents under "spot" (as shown in the chart), this move to a dollar over "spot" is quite significant.

More than anything else, it demonstrates how strong physical demand now is. On a related note, as has been the case for much of the last six months, CNI currently has no 100 ounce bars to sell at this time (see the N/As in the "Sell" column for silver on their bullion page).