Silver’s on Fire

By Monetary Metals

Another interesting week, in that the price of silver separated from the price of gold. The former went nowhere, while the latter gained over 4.5%.

We get the trading thesis, that if the precious metals are in a bull market, then silver should go up more than gold. Silver is the high-beta gold. It’s a smaller market, less liquid, and at the same time it’s the preferred vehicle for betting on a rising price.

We don’t quite get the thesis that gold is going nowhere or even down, and bet on silver which is going to $50. Yet that is now our market reality. Excited silver bulls have pushed silver up from $14 in late January to $17. Meanwhile the price of gold went from $1,100 to $1,260 and then back down to $1,230. The gold silver ratio initially rose from 78.5 to over 83, and down so far to 72.7.

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Blow Off in Progress, But ‘Launch Phase’ Confirmed

By Biiwii

As posted at nftrh.com

On March 4 we reviewed the technical reasons why the gold sector was launching as opposed to blowing off. This, after articles began appearing calling the rise to that point a doomed parabolic blow off using daily charts. Those calling it a blow off were confused; silver in spring 2011 was a blow off in the terminal sense. But when a parabolic move comes off a bottom, it is an impulsive thrust to change the trend, possibly ending the bear market.

We have long noted that gold is the first mover to a new inflationary phase, as the previous deflationary backdrop gets played out. That is exactly what happened, even though the silver miners have made stunning strides in leading the exciting up move in silver that is currently in process. Silver, in taking over leadership from gold would confirm an inflationary phase. Gold is monetary and silver is an industrial commodity with monetary aspects as well; i.e. it is more positively correlated to inflated economies making the silver-gold ratio a sensitive indicator to inflation.

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Gold-Silver Opposites

By Monetary Metals

Well that was interesting. Gold went down over thirty bucks and silver went up over thirty cents. How much longer can this silver rally continue in the face of gold’s nonparticipation? Will speculators really be comfortable bidding silver up to $20 while gold sits at $1200? Do the fundamentals support a higher silver price?

How is silver different from gold? Aside from being a lot cheaper per ounce, and that an ounce of silver is almost twice as bulky as an ounce of gold.

There are two differences. One is that Silver has industrial demand. While virtually every ounce of gold ever mined in history is still in human hands, some silver is consumed. Gold is too expensive to put into most products except in minute quantities (though it’s in the iPhone). Most of what goes into electronics is recycled, as circuit boards are equivalent to good ore. As industrial demand falls (witness the collapse in the price of shipping), this component of silver demand falls with it. Smartphone sales may be strong, but silver is used in everything from cars to washing machines. The drop in industrial demand is surely the main culprit in the rise in the gold-silver ratio, predicted and chronicled in this Report for years.

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Precious Metals Conspiracy

By Monetary Metals

For at least a few weeks now, we have noticed a growing drumbeat from a growing corps of analysts. Gold is going to thousands of dollars. And silver is going to outperform. Reasons given are myriad. Goldman Sachs apparently said to short gold, so if one assumes that the bank always advises clients to take the other side of its trades—a tricky and dangerous assumption at best—then one should buy gold. Then there’s the change in ETFs, for example the Sprott Physical Silver Fund has had inflows and Sprott bought more silver. And there’s currency wars, money printing, negative interest rates, etc.

Most of these stories are based in fact (well except the belief that Goldman’s research is always wrong). However, they have little to do with the price of gold. The money supply has grown steadily since 2011 while the prices of gold and silver have not. Hell, the money supply has been growing since forever. And the price of gold has gone up as well as down.

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Gold and Money Supply Correlation

By Monetary Metals

The Gold and Money Supply Correlation Report

There were some fireworks this week. Gold went up on Tuesday (it was a shortened week due to Easter Monday), from a low of $1,215 to $1,244 over the day, a move of over 2 percent. Silver moved from $15.02 to $15.44, almost 3 percent. What happened on Tuesday to drive this move down in the dollar? (We always use italics when referring to gold going up or down, because it is really the dollar going down or up).

Janet Yellen happened, that’s what.

Our Federal Reserve Chair spoke to the Economic Club of New York. We won’t parse her words, but we can see what effect they had on the markets. Markets were up. The S&P surged 45 points, well over 2 percent. The British pound was up almost 2 percent. There was speculative mania, if not irrational exuberance, everywhere. Well almost everywhere. Crude oil was down almost 7% for the week.

When Pavlov trained his dogs to salivate at the sound of the dinner bell, he had to actually serve food. It would not have worked without the reward.

Thus, we remain puzzled at the market salivation at prospects of a greater money supply (or what passes for money nowadays, the irredeemable paper dollar). Why do speculators buy gold and silver at every Fed hint of greater money supply to come? Pavlov’s dogs had only the most rudimentary theory. Dinner occurs after that ringing sound. The market has a sophomoric theory. Higher prices will come after that printing sound. At least that’s the hope, which apparently springs eternal.

We thought we would graph the weekly money supply (MZM is Money of Zero Maturity), one of the measures tracked by the St Louis Fed and overlay the price of gold. We started the graph in April 2011, exactly 5 years ago. It happens to be just prior to the peak in the price of gold, but we don’t think we are cherry-picking the date. A five-year data set ought to be enough to show the trend or lack thereof, as we see in money supply growth and gold price growth respectively.

letter apr 3 mzmgold, gold and money supply

The Price of Gold and Money Supply (MZM)

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