By Melissa Pistilli-Exclusive to Silver Investing News

The Dow, along with other major indexes, plunged out of control Monday as investors everywhere shook off any perceived fantasy that the $700 billion bank bailout would serve as a panacea for the U.S. financial crisis. The Dow fell to 9,525.32, it’s lowest level since October 24, 2003. The Standard & Poor’s 500 index and the Nasdaq both fell to their lowest points in over five years.

Most of the major indexes, including the Dow, S&P, and the Nasdaq, cut majority of their losses by the final hour. Yet, Tuesday the markets were once again taking big losses.

Good news for gold, though. The precious metal has been up the last two days as investors look for safe alternatives. Silver wasn’t on board Monday and was actually taking a loss while gold gained. Tuesday, the “poor man’s gold” was back in sync with its yellow cousin and once again putting on gains, up to $11.52/0z Tuesday afternoon. Gold is rebounding quickly from its previous lows and silver will soon as well, as they rarely move out of synch with each other.

Paper vs. Physical Market

Some analysts attribute recent lows in the spot price of silver to its use as an industrial metal and therefore its ties to basic metals prices. Others feel quite strongly that severe manipulation by certain banks and even the U.S. government is the root cause.

Whatever your view, it is hard to ignore or even deny the marked separation between the spot price of silver and the high premiums in the physical market. “Markets are so out of whack I don’t know what to say,” said Franklin Sanders in Friday’s edition of The Money Changer. “In 28 years trading silver and gold professionally, I’ve never seen markets like this.”

The spot price for silver on the COMEX might lead one to believe the demand for silver has fallen off greatly from where it was just a few months ago. However, said Sanders, it is apparent that the demand for physical silver is “so strong, so frantic, that the public is willing to pay huge premiums to buy it” and dealers are having troubling supplying the demand.

Friday, silver spot price closed at $11.27, but Sanders said to purchase US 90% silver coins he would have to pay a 36% premium over the paper price and wait 2-8 weeks for delivery. Silver American Eagles are at a 50% premium and “heaven only knows” when you’ll receive delivery.

Peter Spina of GoldSeek.com gives further examples. He states that 100 oz. COMEX silver bars, at a premium of $1/2 per ounce a few months ago, are now going for over $3 above the spot price. US Silver Eagles, once at a $2 premium over spot, are now trading at a $4-$6 premium.

“This is the true market in the end and I do not believe in the full integrity of the gold/silver’s paper markets’ pricing mechanism at this time,” said Spina. “I fully expect large price swings (extreme volatility), but the overall trend in the coming months will be to the upside.”