Unfulfilled Prophecies

The price of gold fell $12 last week, but that of silver dropped 63 cents. What’s up with silver?! A prominent analyst wrote on April 19 of the “breakout” in silver. Of course, without the benefit of the basis and the Monetary Metals fundamental price, he could only see the price chart, plus the regular Wall Street indicators such interest rates, oil, and inflation.

 

A somewhat unsightly silver bar of historical interest, found in 1985 in the holds of the wreck of the Spanish galleon Nuestra Senora de Atocha, which sank near the Florida Keys in 1622. It was laden with silver the conquistadores had reportedly just stolen fair and square from Potosi in Bolivia. One presumes the perennially teetering on the verge of bankruptcy Spanish Crown was not very amused (34 of the bars belonged to the King outright, and he would have collected a 20% tax on the rest to boot). Anyway, lumps like this one don’t do breakouts; they do brick-outs and will hurt your toes if you’re not careful. [PT]

 

Based only on those indicators, and blind to the fundamentals, he top-ticked the price of silver almost perfectly. The price hit a high of $17.36 that day, and since then it’s all been downhill, through Friday’s close 89 cents below when he called for the price to take off.

Last week, we said:

 

“Has the silver fundamental had a breakout? We would want to see more evidence before pronouncing this. Heck, even the market price has not surpassed its level from January yet.”

 

The week before, we said:

 

“The fundamental price is now back where it had been in the third week of March. Unlike in gold, there is no rising trend for the silver fundamental price. It’s been sideways action since September last year, and arguably a downtrend of lower highs since February 2017.”

 

The putative replacement for the petrodollar, the petro-yuan, has been sagging since the last date given by some gold bugs for the collapse of the dollar (that collapse, by the way, has been re-scheduled for this summer sometime when the “IMF will alter financial laws”), in case you’re keeping a calendar of such predictions).

 

By and large USD-CNY has moved sideways since February, but since hitting a new high for the move intra-day in late March it has moved to the upper boundary of said range, i.e., it has weakened somewhat lately rather than strengthening further. [PT]

 

We remain firm to our idea that any oil producer who wanted gold, could have been selling oil futures and buying gold futures for 40 years In New York. This trade has long been possible, so instead of looking for a new market that offers it, we should look for an explanation of why the oil producers don’t want to sell their oil for gold (I will discuss reasons why they would want to do it in his talk at the Harvard Club).

 

Fundamental Developments – Fundamental Gold Price Remains Firm

We will look at the picture of silver fundamentals and discuss the prognosis below. But first, here is the chart of the prices of gold and silver.

 

Gold and silver priced in USD

 

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). Big rise in the ratio.

 

Gold-silver ratio, bid and offer. A rising gold-silver ratio is traditionally considered to signal decreasing economic confidence, based on the idea that the industrial demand component is far important for silver prices than for the price of gold, which is driven almost exclusively by investment demand. [PT]

 

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

 

Gold basis, co-basis and the US dollar priced in milligrams of gold

 

The market price of gold fell, but  scarcity i.e., the co-basis (red line) rose. The Monetary Metals Gold Fundamental Price rose $31 this week to $1,538.

Now let’s look at silver.

 

Silver basis and co-basis, and the USD priced in grams of silver

 

In silver, the pattern this week was the same as in gold. Scarcity increased a bit as the price fell. However, the price of silver fell considerably more than the price of gold. Perhaps the selling last week was liquidations of those who bought metal in the previous week?

The Monetary Metals Silver Fundamental Price fell 28 cents to $17.49.

With that drop, the fundamental price of silver is back in the sideways range it has occupied since at least June last year. And arguably since July 2016.

One can argue over whether the price of silver “should” react to China, interest rates, unemployment (record lows, we hear, if you don’t count 96 million people in the workforce), etc. However, this reaction will be a self-fulfilling prophecy of futures traders all trying to front-run the rush to buy the metal that they imagine “should” occur. And they will be front-running only themselves.

What we can’t argue — no, this is not technical analysis, GATA — is that a shift to sustained buying of real metal will be pulling metal out of warehouses. Which is the opposite of the current trade. The continuous silver basis is about 2%. Thus it makes sense for traders to buy the metal and sell it forward, to pocket 2% annualized (net of bid-ask spreads, but not including trading commissions).

Another way to look at this is that buying of real metal will push up the offer price on spot. Remember: basis = future(bid) – spot(offer)

Buying of real metal will cause a drop in the basis. For whatever reason, or reasons, there is a high basis right now. Could the price rally on futures exuberance only? Sure it could. How far could it rally? In past few years, we recall a market price up to three bucks above the fundamental price. So to twenty bucks or so.

How long could it hold? It can hold longer than you can stay solvent shorting it (to paraphrase one of our least favorite economists). But one does not bet that the price of something will move against its fundamentals.

NB: the fundamental price is currently above the market price. So you could bet on a rising market price to a point. The above discussion was about the possibility of a breakout, which we assume no one thinks means moving up a dollar to $17.50.

 

© 2018 Monetary Metals

 

Charts by: BigCharts, Monetary Metals

 

Chart and image captions by PT

 

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

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How to Get Ahead in Today’s Economy
      “Literally On Fire” This week brought forward more evidence that we are living in a fabricated world. The popular story-line presents a world of pure awesomeness. The common experience, however,  falls grossly short.   There are many degrees of awesomeness, up to total awesomeness – which is where we are these days, in the age of total awesomeness, just a short skip away from the Nirvana era. What is Nirvana, you may wonder? We only know for sure that Nirvana is what...
  • Gold and Gold Stocks – Conundrum Alert
      Moribund Meandering Earlier this week, the USD gold price was pushed rather unceremoniously off its perch above the $1300 level, where it had been comfortably ensconced all year after its usual seasonal rally around the turn of the year. For a while it seemed as though the $1,300 level may actually hold, but persistent US dollar strength nixed that idea. Previously many observers (too many?) expected gold to finally break out from its lengthy consolidation pattern, but evidently the...
  • US Money Supply Growth Jumps in March , Bank Credit Growth Stalls
      A Movie We Have Seen Before – Repatriation Effect? There was a sizable increase in the year-on-year growth rate of the true US money supply TMS-2 between February and March. Note that you would not notice this when looking at the official broad monetary aggregate M2, because the component of TMS-2 responsible for the jump is not included in M2. Let us begin by looking at a chart of the TMS-2 growth rate and its 12-month moving average.   The y/y growth rate of TMS-2...
  • Fear and Longing - Precious Metals Supply and Demand
      Waiting for Permanent Backwardation  The price of gold dropped 9 bucks, while that of silver rose 3 cents. Readers often ask us if permanent backwardation (when gold withdraws its bid on the dollar) is still coming. We say it is certain (unless we can avert it by offering interest on gold at large scale). They ask is it imminent, and we think this is with a mixture of fear and longing for a higher gold price.   Lettuce hope this treasure is not cursed... but it probably is....
  • Scorn and Reverence - Precious Metals Supply and Demand
      Shill Alarm One well-known commentator this week opined about the US health care industry:   “...the system is designed the churn and burn... to push people through the clinics as quickly as possible. The standard of care now is to prescribe some medication (usually antibiotics) and send people on their way without taking the time to conduct a comprehensive examination.”   From the annals of modern health care... [PT]   Nope. That is not the standard...
  • Gold and Gold Stocks – The Gloom Patrol
      Fun with Positioning and Sentiment Last week we discussed the gold sector “conundrum” – the odd fact that there is apparently quite strong demand for gold despite a macroeconomic environment that would normally be considered quite bearish for the metal. Gold recently seems to have lost its last remaining inter-market “ally” if you will, as the dollar has begun to enter an uptrend as well. Positioning data in precious metals futures are nevertheless rather remarkable, given the...
  • Global Turn-of-the-Month Effect – An Update
      In Other Global Markets the “Turn-of-the-Month” Effect Generates Even Bigger Returns than in the US The “turn-of-the-month” effect is one of the most fascinating stock market phenomena. It describes the fact that price gains primarily tend to occur around the turn of the month. By contrast, the rest of the time around the middle of the month is typically far less profitable for investors.   Good vs. bad seasonal timing...   [PT]   The effect has been studied...
  • Tales from “The Master of Disaster”
      Tightening Credit Markets Daylight extends a little further into the evening with each passing day.  Moods ease.  Contentment rises.  These are some of the many delights the northern hemisphere has to offer this time of year. As summer approaches, and dispositions loosen, something less amiable is happening.  Credit markets are tightening.  The yield on the 10-Year Treasury note has exceeded 3.12 percent.   A change in pace: yields are actually going somewhere. There is...
  • Is Political Decentralization the Only Hope for Western Civilization?
      Voting with their Feet A couple of recent articles have once more made the case, at least implicitly, for political decentralization as the only viable path which will begin to solve the seemingly insurmountable political, economic, and social crises which the Western world now faces.   Fracture lines – tax and regulatory competition allows people to “vote with their feet” - and they certainly do. [PT]   In the last few months, over 3,000 millionaires have...
  • Getting Out of Dodge
      Rare Commodity Modern economists are prone to shouting fire in a crowded theater.  The world is full of seeming incongruences. Economists puzzle over things like population growth and arable acres of farmland. They project out a linear scenario of increasing divergence, and see a catastrophe in the making.   Professional scaremonger Thomas Robert Malthus, one in a long line of scarcity prophets who failed to recognize the capacity of human ingenuity and free markets to...
  • “Sell In May And Go Away” - A Reminder: In 9 Out Of 11 Countries It Makes Sense To Do So
      A Truism that is Demonstrably True Most people are probably aware of the adage “sell in May and go away”. This popular seasonal Wall Street truism implies that the market's performance is far worse in the six summer months than in the six winter months. Numerous studies have been undertaken in this context particularly with respect to US stock markets, and they  confirm that the stock market on average exhibits relative weakness in the summer.   Look at the part we...
  • Why the Fundamental Gold Price Rose - Precious Metals Supply and Demand
      Gold Lending and Arbitrage There was no rise in the purchasing power of gold this week. The price of gold fell $22, and that of silver $0.19. One question that comes up is why is the fundamental price so far above the market price? Starting in January, the fundamental price began to move up sharply, and the move sustained through the end of April.   1-month LIBOR (London Interbank Offered Rate – the rate at which banks lend euro-dollars to each other). LIBOR and GOFO...

Support Acting Man

Item Guides

Top10BestPro
j9TJzzN

The Review Insider

Dog Blow

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