A Week of Short-Lived Silver Spikes

There is a great lyric in Won’t Get Fooled Again by The Who:

 

Then I’ll get on my knees and pray

We don’t get fooled again

 

Remember last week, when the price of silver spiked? On Thursday that week, the price was moving sideways around $14. Then around 5 am (Arizona time), the price began to rise. Before 11 am, it had hit $14.38. And then it was all over. The price went downhill from there, the rest of the day and all day Friday. It closed at $13.93.

 

silver nuggetA beautiful natural silver nugget

Photo via etsy.com

 

The same thing happened this Thursday, with the move beginning at $13.81 at 6am. Before 10, it hit $14.17. As we did the previous week, we tweeted near the top. “Silver run up… fundamental or speculative?” The price slowly slipped the rest of the day, and at 5am on Friday began to drop sharply.

Extra bonus points: guess which morning price moves got the silver bugs’ knickers in a twist? The sharp rises or the sharp drop, around the same time of day?

Anyway, at 5 am on Friday, the price began to spike once again, reaching $14.13 before 7 am. But it couldn’t hold that level. It closed the day, and the week, at $13.90.

Three spikes in two weeks, reaching $14.38, $14.20, and $14.13. We don’t tend to emphasize price charting, but as a technical indicator this does not seem bullish. We will address the fundamentals of silver and gold, below…

 

Fundamental Developments

First, here’s the graph of the metals’ prices.

 

chart-1-prices of gold and silverThe prices of gold and silver – click to enlarge.

 

We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can’t tell them whether the globe, on net, is hoarding or dishoarding.

One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.

Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual production (stocks to flows) can be measured in months. The world just does not keep much inventory in wheat or oil.

With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply. Everyone on the planet is potential demand. At the right price, and under the right conditions. Looking at incremental changes in mine output or electronic manufacturing is not helpful to predict the future prices of the metals. For an introduction and guide to our concepts and theory, click here.

 

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio dipped this week.

 

chart-2-gold-silver ratioGold-silver price ratio – click to enlarge.

 

For each metal, we will look at a graph of the basis and co-basis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and co-basis in red.

 

Here is the gold graph.

 

chart-3-gold-basis and cobasisGold basis and co-basis and dollar price – click to enlarge.

 

The red and green lines didn’t track so well this week. The price of the dollar is up (i.e. the price of gold, measured in dollars, is down). Indeed, the dollar went up .14mg, or as the muggles (a term from Harry Potter) would say, gold went down $15.

But the cobasis (i.e. scarcity indicator) of the metal went down. Gold became a bit less scarce, as it became a bit cheaper. Not a lot, and maybe it doesn’t mean that much in a week before a shortened holiday week next week (Monday is Martin Luther King day in America). But it happened.

Unsurprisingly, our fundamental price for gold dropped $33. It’s still $130 over the market price, but it’s less than it was (last week, it was $150 over the market and the market was $15 higher).

Now let’s look at silver.

 

chart-4-silver basis and cobasisSilver basis and co-basis and the dollar price – click to enlarge.

 

The price of silver was basically unchanged. However, note the big drop in the co-basis (more than twice as big as the drop in the gold co-basis).

The fundamental price for silver fell again this week, by 30 cents. It’s now 20 cents below the market.

 

A Curious Development

We leave off this time with a curious chart.

 

chart-5-10 year treasury yield10 year treasury yield – click to enlarge.

 

We see the same kind of noise in this chart as has spiked the silver chart three times in the past two weeks. The market gets worked up about something. In the case of the Treasury market, the issue was the coming Fed rate hike.

On October 28, the rate began to spike from under 2.1% to over 2.3% on November 9 (a move of 15.5 percent!) But then, the move proved unsustainable. The speculators, who were trying to front-run the whole world, ended up only front-running themselves.

By this Friday, the bond yield was right back to where it started on October 28. The Treasury market took about two and a half months to do what the silver market has been doing in 24 hours.

During our years-long call for the silver price to fall, the price did sometimes correct (upwards) sharply. Some of those corrections lasted a while (though not in the past few weeks).

Our call for the interest rate is the same. We don’t expect it to go straight down, but we do expect the decades-long trend to continue. That trend in rates is down (i.e. up in bond prices). This is not bullish for regular commodities, though we don’t expect gold and silver to behave anything like oil, copper, natgas, or corn.

 

Charts by:  Monetary Metals

 

Dr. Keith Weiner is the president of the Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “Won’t Get Fooled Again”

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Trade War Game On!
      Interesting Times Arrive “Things sure are getting exciting again, ain’t they?”  The remark was made by a colleague on Tuesday morning, as we stepped off the elevator to grab a cup of coffee.   Ancient Chinese curse alert... [PT]   “One moment markets are gorging on financial slop like fat pigs in mud.  The next they’re collectively vomiting on themselves. I’ll tell you one thing.  President Trump’s trade war with China won’t end well.  I mean, come...
  • The Dollar Cancer and the Gold Cure
      The Long Run is Here The dollar is failing. Millions of people can see at least some of the major signs, such as the collapse of interest rates, record high number of people not counted in the workforce, and debt rising from already-unpayable levels at an accelerating rate.   Total US credit market debt has hit a new high of $68.6 trillion at the end of 2017. That's up from $22.3 trillion a mere 20 years ago. It's a fairly good bet this isn't sustainable....
  • US Stock Market: Happy Days Are Here Again? Not so Fast...
      A “Typical” Correction? A Narrative Fail May Be in Store Obviously, assorted crash analogs have by now gone out of the window – we already noted that the market was late if it was to continue to mimic them, as the decline would have had to accelerate in the last week of March to remain in compliance with the “official time table”. Of course crashes are always very low probability events – but there are occasions when they have a higher probability than otherwise, and we will...
  • Rise of the Japanese Androids
      Good Intentions One of the unspoken delights in life is the rich satisfaction that comes with bearing witness to the spectacular failure of an offensive and unjust system. This week served up a lavish plate of delicious appetizers with both a style and refinement that’s ordinarily reserved for a competitive speed eating contest. What a remarkable time to be alive.   It seemed a good idea at first... [PT]   Many thrilling stories of doom and gloom were published...
  • Claudio Grass on Cryptocurrencies and Gold – An X22 Report Interview
       The Global Community is Unhappy With the Monetary System, Change is Coming Our friend Claudio Grass of Precious Metal Advisory Switzerland was recently interviewed by the X22 Report on cryptocurrencies and gold. He offers interesting perspectives on cryptocurrencies, bringing them into context with Hayek's idea of the denationalization of money. The connection is that they have originated in the market and exist in a framework of free competition, with users determining which of them...
  • No Revolution Just Yet - Precious Metals Supply and Demand Report
      Irredeemably Yours... Yuan Stops Rallying at the Wrong Moment The so-called petro-yuan was to revolutionize the world of irredeemable fiat paper currencies. Well, since its launch on March 26 — it has gone down. It was to be an enabler for oil companies who were desperate to sell oil for gold, but could not do so until the yuan oil contract.   After becoming progressively stronger over the past year, it looks as thought the 6.25 level in USDCNY is providing support for the...
  • The “Turn of the Month Effect” Exists in 11 of 11 Countries
      A Well Known Seasonal Phenomenon in the US Market – Is There More to It? I already discussed the “turn-of-the-month effect” in a previous issues of Seasonal Insights, see e.g. this report from earlier this year. The term describes the fact that price gains in the stock market tend to cluster around the turn of the month. By contrast, the rest of the time around the middle of the month is typically less profitable for investors.   Due to continual monetary inflation in the...
  • Flight of the Bricks - Precious Metals Supply and Demand
      The Lighthouse Moves Picture, if you will, a brick slowly falling off a cliff. The brick is printed with green ink, and engraved on it are the words “Federal Reserve Note” (FRN). A camera is mounted to the brick. The camera shows lots of things moving up. The cliff face is whizzing upwards at a blur. A black painted brick labeled “oil” is going up pretty fast, but not so fast as the cliff face. It is up 26% in a year. A special brick, a government data brick of sorts, labeled...
  • Getting High on Bubbles
      Turn on, Tune in, Drop out Back in the drug-soaked, if not halcyon, days known at the sexual and drug revolution—the 1960’s—many people were on a quest for the “perfect trip”, and the “perfect hit of acid” (the drug lysergic acid diethylamide, LSD).   Dr. Albert Hoffman and his famous bicycle ride through Basel after he ingested a few drops of LSD-25 by mistake. The photograph in the middle was taken at the Woodstock festival and inter alia serves as a...

Support Acting Man

Item Guides

Top10BestPro
j9TJzzN

The Review Insider

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

Diary of a Rogue Economist