Silver Rockets Higher

So the price of silver rocketed up 80 cents, while the price of gold jumped $37. Silver is now more expensive than it was two weeks ago; the price decline of last week was more than overcompensated.

This pushed the gold-silver ratio down about two whole points, with virtually the whole move on Friday.

 

silver rocket

 

Last week, we said this:

 

Monetary Metals has been predicting a ratio well over 80 for a long time. And for two months, we have been calling for it to go much higher still. Could there be a correction? Absolutely. Could the fundamentals change? We expect they will—at some point. We will call that when we see it.

 

Is this a correction? Or is this the reversal of the fundamentals? Was this price-lifting buying spree stackers, taking delivery of bars and coins? Or was it leveraged speculators placing their bets on paper contracts?

 

Fundamental Developments

Read on for the only true picture of the gold and silver supply and demand fundamentals…

But first, here’s the graph of the metals’ prices.

 

chart-1-pricesGold and silver prices – 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 was down.

 

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

 

For each metal, we will look at a graph of the basis and cobasis 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 cobasis in red.

 

Here is the gold graph.

 

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

 

The picture couldn’t be clearer. The green line is the price of the dollar, measured in gold. It is falling (the inverse of what people think of as gold going up). The red line is the cobasis, our scarcity indicator.

Gold is becoming less scarce as its price is rising.

It’s almost eerie how well the gold scarcity tracks the dollar price, as they both descend. Almost as if there was a connection. Or something. ;)

We have a proprietary algorithm that calculates a fundamental price for each metal. The concept is simple. What if we could back out the price impact of speculators, and see where price would be if supply and demand for metal were balanced?

The answer is $1,431.

Now let’s look at silver.

 

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

 

The same story exists in silver. As its price has risen, it has become less scarce. The difference with silver is the absolute level of the co-basis. It is -133 basis points, compared to -53 in gold.

What if we could calculate what the price would be, if supply of physical metal matched demand?

$14.09.

While speculators are pushing the price of gold down, $170 below its fundamentals, they are pulling silver $1.40 above.

As we said last week, we suspect some of these speculators are precious metals fans, who feel that an 80:1 gold-silver ratio is excessive. It’s just about touched the 2008 high (but is nowhere near the level hit in 1991). Is it time for the ratio to reverse and move back towards the lows set in 2011?

Perhaps a reader can suggest a quote from Firefly or Star Trek or some other science fiction show. The key point that this quote must make is: “don’t bet on it.”

Unless these would-be gold-silver arbitrageurs get lucky, and the silver fundamentals firm up soon, their trade will end in tears.

In the meantime, silver is correcting along with junk bonds, crude oil, and other assets.

 

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: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

One Response to “Gold-Silver Ratio Reversal”

  • fengqin821021:

    Hello,
    I am really respect all of the writers on this website.
    And really enjoy to read most of the articles.

    But I have seriously doubt about your analysis on gold and sliver.
    Here is my concern:
    1, the analysis really can predict the gold and silver price in the short term? or long term? or ?
    2, if your analysis can work, any kind of period, can you should the monthly charts with your analysis? or weekly charts?
    3, Base on your analysis, “weekly” report, either gold or silver is moving base on your weekly analysis. So why we should really concern your “predictions”?

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold Sector Update – What Stance is Appropriate?
      The Technical Picture - a Comparison of Antecedents We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of...
  • Don’t Blame Trump When the World Ends
    Alien Economics There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook.   One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes' nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ –...
  • Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections
      Looming Currency and Liquidity Problems The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into...
  • What is the Best Time to Buy Stocks?
      Chasing Entry Points Something similar to the following has probably happened to you at some point: you want to buy a stock on a certain day and in order to time your entry, you start watching how it trades. Alas, the price rises and rises, and your patience begins to wear thin. Shouldn't a correction set in soon and provide you with a more favorable buying opportunity?   Apple-Spotting – a five minute intraday chart showing the action in AAPL on February 1, 2017 - an...
  • Trump and the Draining of the Swamp
      Swamp Critters BALTIMORE – The Dow is back above the 20,000-point mark. Federal debt, as officially tallied, is up to nearly $20 trillion. The two go together, egging each other on. The Dow is up 20 times since 1980. So is the U.S. national debt. Debt feeds the stock market and the swamp. What’s not up so much is real output, as measured by GDP. It’s up only 6.4 times over the same period. Debt and asset prices have been rising three times as fast as GDP for 36 years! Best...
  • Gold and Silver Divergence – Precious Metals Supply and Demand
      Gold and Silver Divergence – Precious Metals Supply and Demand Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising. Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it...
  • When Trumponomics Meets Abenomics
      Thirty Year Retread What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway]   Japan's prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America's...
  • The Great Wailing
      Regret and Suffering BALTIMORE – Victoribus spolia... So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment. Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations.   Oh no! Alaric the Visigoth is here! Hide the women and children! And don't forget the vestal virgins, if you can find any...   You’d think Washington had been invaded by Goths, now...
  • Receive a One Percent Gift When Buying or Selling a Home
      How to Save Money When Buying or Make More When Selling a Home In your professional capacity and perhaps also in your private life, you may be closely involved with financial and commodity markets. Trading in stocks, bonds or futures is part of your daily routine.  Occasionally you probably have to deal with real estate as well though – if you e.g. want to purchase an apartment or a house, or if own a home you wish to sell.   The people who took this photograph probably want to...
  • Silver Futures Market Assistance – Precious Metals Supply and Demand
      Silver Is Pushed Up Again This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday.   Taking off for real or not? Photo credit: NASA   Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again? This will again be a brief Report this week, as we are busy...
  • Unleashing Wall Street
      To Unleash or Not to Unleash, That is the Question... LOVINGSTON, VIRGINIA –  Corporate earnings have been going down for nearly three years. They are now about 10% below the level set in the late summer of 2014. Why should stocks be so expensive?   Example of something that one should better not unleash. The probability that a win-lose proposition will develop upon meeting it seems high. It wins, because it gets to eat... Image credit: Urs Hagen   Oh,...
  • Boondoggles for the Swamp Critters
      Monster or Mozart? BALTIMORE – Investors seem to be holding their breath, like a man hiding a cigarette from his wife. It’s just a feeling, and it’s not the first time we’ve had it... but it feels as though it wouldn’t take much to send them all running.   Actually, they're not going anywhere yet... but there is a lot of overconfidence by those who were very worried when prices were a lot better - click to enlarge.   Meanwhile... we’re coming to a deep...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

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]

 

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

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com