Silver Futures Market Assistance

By Keith Weiner of Monetary Metals

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. 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 working on something new and big. And Keith is on the road, in New York and Miami.

Below, we will show the only true picture of the gold and silver supply and demand fundamentals. But first, the price and ratio charts.

The Prices of Gold and Silver
gold and silver prices

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

The Ratio of the Gold Price to the Silver Price
gold-silver ratio

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.

The Gold Basis and Cobasis and the Dollar Price
gold and us dollar

Again, we see a higher price of gold (shown here in its true form, a lower price of the dollar) along with greater scarcity (i.e. cobasis, the red line).

This pattern continues. What does it mean?

First, it means the price of gold is being pushed up by buyers of physical metal. Not by buyers of futures (which would push up the basis, and reduce scarcity).

Second, if it continues too much more, it means nothing good for the banking system. There is one force that can make all the gold in the world—which mankind has been accumulating for thousands of years—disappear faster than you can say “bank bail in”. The force is fear of counterparties, fear of banks, fear of currencies, fear of central bank balance sheets… fear of government finances.

We want to emphasize that the gold basis is not signaling disaster at the moment. It is merely moving in that direction, for the first time in a long time. It has a ways to go yet.

Our calculated fundamental price is up another $40 (on top of last week’s +$40). It is now about $130 over the market price.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
silver and us dollar

Note: we switched to the May contract, as March was becoming unusable in its approach to expiry.

In silver, the story is a bit less compelling. The scarcity of the metal is holding, as the price rises. However, scarcity is not increasing.

Were we to take a guess, we would say there is some good demand for physical, and the price action had futures market assistance.

While the market price moved up 44 cents, our calculated fundamental price moved up … 46 cents.

Gold and Silver Divergence

By Monetary Metals

This 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 the 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 so.

This will be a brief Report this week, as we are busy working on something new and big.

Below, we will show the only true picture of the gold and silver supply and demand fundamentals. But first, the price and ratio charts.

The Prices of Gold and Silver
gold and silver prices

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

The Ratio of the Gold Price to the Silver Price
gold-silver ratio

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.

The Gold Basis and Cobasis and the Dollar Price
gold and the us dollar

Do we have rising price of gold, up $25 (i.e. falling dollar, from 26mg to 25.5mg gold)? Yes. Do we have rising scarcity of gold (i.e. the cobasis, our measure of scarcity)? Why yes, we do.

This resumes the pattern that began the last week of December. The price of gold made a low of $1,127 (i.e. the dollar made a high of 27.6mg). Since then, the price of gold has been rising (i.e. the dollar has been falling) while the scarcity of gold has been rising.

Not a lot. Not Defcon 5, gold is going to spike to $10,000 (i.e. the dollar is going to crash to 3mg gold). Not a big obvious crisis-looking sort of move. Just a gradual move from -100bps to -68bps. What makes it significant is that it occurred with rising price. Gold is becoming scarcer as its price rises.

So far, this move has been driven by buyers of physical metal.

Our calculated fundamental price is up $40 to stay about $100 over the market price.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
silver and the us dollar

In silver, there is quite a bit more volatility in the basis. And though the March cobasis is up, farther contracts do not show the same move.

Our calculated fundamental price did move up a bit—15 cents. However, it did not keep up with the market move. So now it’s basically even with the market price. It turns out speculators did think that silver ought to outperform gold, and they tried. They caught up to and passed the buyers of physical metal.

We note that in the futures market, the open interest in gold turned down sharply starting last week. However, silver open interest diverged, and continued to skyrocket.

LMBA 2017 Forecasts (for the US Dollar)

By Bron Suchecki of Monetary Metals

Every year the London Bullion Market Association (LBMA) surveys the top precious metals analysts of bullion banks and consultancy firms for their forecasts for precious metal prices for the year ahead. We look at things a little differently, and would say that the analysts are forecasting the value of the US Dollar, priced in gold (or silver). This year the analysts are generally bearish on the Dollar, with an average forecast of 25 milligrams of gold, down 5% from the value of the dollar at the start of this year.

The aggregated forecasts assembled by the LBMA have a fair history of accuracy, as the chart below demonstrates. It shows the actual average value of the Dollar as a line against the lowest (bottom of the navy bar), highest (top of the dark cream bar) and average (where navy and dark cream bars meet) of the forecasts . Note that these charts are of the analysts’ yearly averages – see the survey for more detail on each analysts’ high and low range.

au_lbma_dollar_2017

Again, this year the range of forecasts is quite tight, indicating more consensus among the analysts about the direction of the US Dollar. The most pessimistic analyst is Joni Teves of UBS (the 2016 forecast winner), who sees the US Dollar averaging 23.04 milligrams during 2017, whereas Bernard Dahdah from Natixis is the most optimistic, thinking it will average 28.02mg of gold. For reference, the dollar is currently 25.84mg gold.

The LBMA analysts are less accurate when looking at the US Dollar in silver terms but this year their range is tight so they must be confident. William Adams of Metal Bulletin Ltd has the lowest average at 1.54 grams of silver while Bernard Dahdah sees the average at a high 2.06g. The dollar is currently 1.78g silver.

ag_lbma_dollar_2017

If you want to look at things back-to-front, you can find the survey here, where they present the forecasts as if it is the value of gold and silver that is changing. Crazy, huh? We plan to release our own predictions soon, in our Outlook 2017.

Silver Speculators Gone Wild

By Keith Weiner of Monetary Metals

This week, the prices of the metals had been up Sunday night but were slowly sliding all week—until Friday at 7:00am Arizona time (14:00 in London). Then the price of silver took off like a silver-speculator-fueled-rocket. It went from $16.68 to $17.25, or 3.4% in two hours.

What does it mean? We don’t know. We would bet an ounce of fine gold against a soggy dollar bill that no one else does either. The old stories of silver shortage or manipulation have no power to explain this move. Why not? Because they are old. The explanation would have to say that earlier in the day there was a reason for silver to trade well under $17 but as of that moment, it was urgent that the metal trader well over $17.

As often occurs, once the move hits certain levels on a price or momentum chart, that’s all it takes. It’s of no use to say that in the long run this will be just another blip of noise. In the heat of the moment, these 60-cent moves are exciting.

Below, we will have an intraday silver chart that shows clearly something that is almost never available to the public. We have a plot of the basis against price. If other theories are right (e.g. manipulation, shortage) this chart should show nothing of interest.

We are at no risk of that. 🙂

But first, the price action and regular basis charts.

The Prices of Gold and Silver
gold and silver prices

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

Continue reading Silver Speculators Gone Wild

The Trump Weak Dollar Report

By Monetary Metals

The action favored bettors this holiday-shortened week (Monday was Martin Luther King day in the US), with the price of gold up 13 bucks and silver up 26 cents.

We noticed a worrisome remark by newly inaugurated President Trump. The strong dollar of the past 20 years, he said, is not good for American competitiveness. Let’s just tackle this straight on. Actually, we will address three distinct issues.

First, Trump said, “our companies can’t compete with China now because our currency is too strong.” Keith is old enough to remember long before the current scare about China, the scare was about Japan. Japan was going to bury American companies, and buy up America. Or so we were told. It would be interesting to look at the yen during this time, to see if it was falling and giving Japan some of the competitive advantage that Trump theorizes should occur.

As it turns out, it’s exactly backward. From a low of 0.33 cents in 1976, the yen rose to nearly 1.3 cents by the mid 1990’s.

Of course, this makes sense to everyone but benighted economists. How could draining away the savings of the people and businesses give any advantage? That is what currency devaluation really means. A loss of everyone’s savings. Poof.

This brings us to the alleged strong dollar. On January 22, 1997—exactly 20 years ago—the dollar was worth about 89mg gold. Compare to Friday, when it was just under 26mg, a loss of 71%. Orwell would be proud at this new meaning of the word strong!

Of course, no one any more believes in any kind of objective standard. The dollar, they think, should be measured by the euro, pound, and yen. And they, in turn, are measured against the dollar. It’s a neat little trick, a sleight of hand, to distract attention from wholesale theft.

Finally, we have Trump advisor Anthony Scaramucci, who said the rising dollar will “have an impact internally in the US”. He spoke of “reaching out for lower-class families and middle-class families.”

To reaching for… that is a good visual for this. The government will reach for their savings!

Fortunately, under the current structure, the president does not have the power to push the dollar down. Heck, the Fed has been trying to do that for years, and has not been succeeding. However, this is a worrying development that bears close watching. Can anyone—including Trump—say what he might do?

Below, along with the fundamentals, we show a hint of what’s coming soon at Monetary Metals. But first, the price action.

The Prices of Gold and Silver
gold and silver prices

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

Continue reading The Trump Weak Dollar Report

A Hint of Gold Backwardation

By Keith Weiner of Monetary Metals

We can only report that there is a change in behavior in the gold market

Last month, we noted that there could be a trend change in progress. Not only are the prices of the metals rising (which is just a mirror-image of the dollar falling, from 27.6 milligrams of gold just before Christmas to currently under 26mg). But the scarcity of gold as we measure it, using the spread between the price of gold in the spot and futures markets, has been rising.

What could cause this? One thing is for sure. It is not about the quantity of dollars. This theory is as popular as ever, despite the absolute lack of a rising gold price from September 2011-2016. The quantity of dollars has risen steadily since then.

We write much about the frequent cases when traders place big bets on something which is wrong. But the fact of their big bets drives up the price. Suppose speculators were betting on a big increase in the quantity of dollars under Trump. Then we would see a rising price alright, but we would see a rising basis—our measure of abundance of gold to the market. This cannot explain the current market either.

So what can? Recall Keith Weiner’s gold backwardation thesis. In times of stress or crisis, it is always the bid, and never the offer, which is withdrawn. Suppose the US Geological Survey were to make a dire announcement—THEY ARE NOT SAYING THIS, SO DO NOT MISCONSTRUE!! Suppose they said that there will be an earthquake in LA, an 11 on the Richter Scale. Nothing taller than a dollhouse will be left standing.

There would be no lack of offers to sell real estate. Some would hold out hope of getting “their price”. Others would generously offer to discount it 10% or 25% from the previous level.

However, what would be conspicuously absent would be a bid. Most likely from Santiago Chile to Vancouver, British Columbia and as far east as the Mississippi River. At least until the quake hit and the danger was passed.

It is gold that will withdraw its bid on the dollar. The bid sputtered 8 years ago, and intermittently since then. Then it has mostly been steady in the past few years. And now there is a hint of it, in the February gold contract. It’s just what we call temporary backwardation—a short term blip confined to the near contract that is heading into expiry.

However, we think it is notable. It means someone or many someones are switching their preference to gold, in spite of the higher yields available in the market now. Or maybe because of it. This preference, unlike speculators buying futures with leverage, is not about betting on price. It is about safety. Gold, unlike a bond, does not default.

Is this the explanation, and the whole explanation? We don’t know. We can only report that there is a change in behavior in the market. Whereas previously—this was the pattern for years—a rising price was accompanied by rising basis. And now we have rising price and the cobasis is rising instead. Rising scarcity rather than rising abundance.

To be sure, it is still a nascent trend. There is no guarantee that this won’t go poof like it has in the past. We will keep showing the data, and calling it like we see it.

Indeed, look for a new website soon. We plan to have more charts, many more, and updated daily. Including one data series that all the experts said could not be calculated.

Below, we will look at the supply and demand fundamentals for gold and silver. But first, the price action.

The Prices of Gold and Silver
gold and silver prices

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

Continue reading A Hint of Gold Backwardation

Silver’s Got Fundamentals; Gold and Silver Report

By Keith Weiner of Monetary Metals

This week was another short week, due to the New Year holiday. We look forward to getting back to our regularly scheduled market action.

The prices of both metals moved up again this week. Something very noticeable is occurring in the supply and demand fundamentals. We will give an update on that, but first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver
gold and silver prices

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

The Ratio of the Gold Price to the Silver Price
gold-silver ratio

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.

The Gold Basis and Cobasis and the Dollar Price
gold and us dollar

We now have several weeks of data to see a distinct pattern. Since Dec 15, the dollar has been falling (which muggles perceive as gold rising, much the way people in a sinking ship see a lighthouse rising). What’s new is that gold has been getting more scarce while this happens. The red line (i.e. the cobasis, our measure of scarcity) is rising while the green line (i.e. the dollar price in gold milligrams) is falling. This is no mere repositioning by speculators. It’s fundamental demand.

What we don’t know yet is whether this is another flash in the pan, or if it will prove to be durable.

What we do know is that, absent speculators, gold metal would be clearing at about 90 bucks above the current market price.

No one can guarantee that the price won’t drop (or the fundamentals won’t turn), but if you’re looking for a buying opportunity, you could do worse than the present.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
silver and us dollar

In silver, we do not see the same pattern. We have a much higher basis (abundance) and a much lower cobasis. The dollar did not begin falling in silver terms until a week later than in gold. We have had a recent rise in the cobasis, but it’s hard to say if it is rising the way gold’s cobasis is. We want to see more of a trend.

We calculate a fundamental price of silver now over $16.50. That is above the market price for the first time since … January 2016.

Happy New Year, Gold & Silver Report

By Keith Weiner of Monetary Metals

This weeks is also a short Report, and also a day later than normal, due to the New Year’s holiday. We hope everyone has a healthy, happy, and prosperous 2017!

The prices of the metals moved up last week, except for Friday which was a bump in the road, especially for silver.

Below, we will give an update on the supply and demand picture and the fundamental prices. But first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver
gold and silver prices

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

The Ratio of the Gold Price to the Silver Price
gold-silver ratio

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.

The Gold Basis and Cobasis and the Dollar Price
gold and the us dollar

The red cobasis line (i.e. scarcity) rose slightly this week. That’s interesting, because the price of gold was up.

We would be reluctant to read too much into the past few weeks, as the holidays affected many market participants. That said, our calculated fundamental price is up to almost $1,220.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
silver and the us dollar

Unlike in gold, we see that silver became less scarce. Its price did not rise as much as gold’s.

Our calculated fundamental price barely moved. It’s still just over $15.60.

Merry Christmas, Gold and Silver Report

By Keith Weiner of Monetary Metals

This will be a short Report, due to the Christmas and Boxing Day holidays (which is also why it is coming out on Monday evening Arizona time, a day later than our usual). We wish everyone a Merry Christmas!

The price of gold moved sideways, whereas that of silver had a plunge on Friday.

Below, we will give an update on the supply and demand picture and the fundamental prices. But first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver
gold and silver prices

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

The Ratio of the Gold Price to the Silver Price
gold-silver ratio

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.

The Gold Basis and Cobasis and the Dollar Price
gold and the us dollar

The red cobasis line (i.e. scarcity) rose a bit this week. With a sideways price, that means supply and demand got a bit tighter.

Whereas last week, our calculated fundamental was just under $1,160, this week it’s $1,165.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
silver and the us dollar

The dollar gained even more, rising from 1.94 grams last week (and 1.85 the week before) to 1.98g. The silver cobasis did rise a bit.

And our calculated fundamental price moved up to $15.60.

Fed Rate Hike Causes Gold Price Drop

By Keith Weiner of Monetary Metals

The price action was not what most of those in the gold community hoped for (or predicted). The price of gold dropped another $24 and that of silver nearly a whole dollar.

The big news of course is that the Fed hiked rates another 25 basis points. So far, stock market speculators don’t seem to care. They should. The present value of all future earnings depends on the interest rate, and every upwards tick is a substantial downward revision of earnings in out years. However, the bull is so strongly entrenched that it may take a while for this to sink in. We also think of the companies that were borrowing to buy their own shares, and for that matter borrowing to pay dividends. At what interest rate do those two trades stop?

Are higher interest rates bad for gold and badder for silver? Are we close to capitulation in the metals? Readers of last week’s Report know that we put the fundamental prices of gold and silver at $1,190 and just over $15. Where are they now after this week’s action?

Below, we will give an update on those fundamental prices. But first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver
gold and silver prices

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

Continue reading Fed Rate Hike Causes Gold Price Drop