The Curious Case of Falling Gold and Silver Prices

Monetary Metals's picture


A curious thing happened last week. The prices of both monetary metals have been falling for a week and a half through February 15. No, that’s not the curious part. There is no law of nature that says the prices have to go up, but if they go down it must be artificial somehow. The curious thing is that the price fell while open interest in futures rose, which is not typical of how the market has actually been behaving in recent years.

Now let’s look at the data.


Gold and Silver Prices


Silver loses about 6.6%, and gold about 4%; thus the gold:silver ratio gains about 2.6%.

Next, let’s look at the open interest data, which is the number of futures contracts in each metal.


Total Futures Contracts


One possible explanation is the notorious “naked short sellers”. If so, they made money. Prices did fall. However, there is more data that doesn’t quite fit this theory.

As we showed, silver open interest was already quite high. It increased a few thousand contracts (under 2%) during the period through February 15. Gold open interest was not high by recent historical standards, and its open interest rose by 25,000 contracts (around 6%).

Now let’s look at the basis data (here is a short tutorial on the basis). This adds additional color to the data provided above.


Gold Basis


The gold basis has been falling for a long time. The basis generally (but not always) moves in the opposite direction of the cobasis, and this linked article showed the cobasis rising. The falling gold basis is not news in itself.

Let’s look at the silver basis.


Silver Basis


The silver basis for December has been in a rising trend since at least last July (which uptrend is not yet broken, in our opinion). Here in this graph, we see it is not much changed from start to end. The May basis is falling, which is interesting as it occurs against the contract “roll” from March-May, now occurring. The “roll” is when “naked longs” must sell because they cannot take delivery, and typically they buy the next month if they want to keep exposure to the metal.

The above data shows: (1) falling prices, (2) rising open interest, and (3) falling basis in gold and slightly more ambiguously in silver. We have provided all of the data comprising this curious circumstance. You can form your own conclusion.

Or you can read Part II of this article (free enrollment required for full access) for our analysis and surprising (though tentative) conclusion.

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Wed, 02/20/2013 - 21:34 | 3261864 cosmyccowboy
cosmyccowboy's picture

i just recieved my last purchase! 5 rolls of dimes and 3 pandas, regretably i have no fiat left for this last dip but was able to scrabe up enough for 2 peach and 2 apple trees that went into the ground today!!!

Wed, 02/20/2013 - 21:32 | 3261847 hootowl
hootowl's picture


I'd say take it to, but that is probably where you got it.

Wed, 02/20/2013 - 21:01 | 3261797 Debeachesand Je...
Debeachesand Jerseyshores's picture

Just buy all the PM's you can on the dips and pay little or no attention to all the pundits noise  about those "barbaric metals".

Wed, 02/20/2013 - 21:00 | 3261788 nmewn
nmewn's picture

Great discussion of what is fiat money, its velocity (and lack thereof), pricing and value.

We can argue that its deflation or inflation (and all still be correct) because it is really both. Now approaching a majority of people don't have the fiat money required for what is known as a healthy economy (deflation) while costs of finished goods & services paid with fiat explode upward (inflation).

At the basic level, fiat is meant to be used for trade, payment of debts & interest. Now, other mediums have been created, from the same source (EBT etc.) which are not counted in the archaic models of money used.

No matter what old terms we choose to apply in order to relay what we see (inflation or deflation) it is...the destruction of fiat money.

Plan accordingly.

Wed, 02/20/2013 - 21:29 | 3261853 daxtonbrown
daxtonbrown's picture

What you are describing is sometimes called Biflation, or Screwflation. Biflation differs from Keynesian stagflation, stagflation was UNEXPECTED by their thory.

Biflation is the EXPECTEDD result of monetary manipulation. The Federal Reserve is ALWAYS pushing on a string, otherwise it would be a perpetual motion machine.

Wed, 02/20/2013 - 21:47 | 3261887 nmewn
nmewn's picture

Screwflation...I like it.

Yes, they've never been able to come to grips with the "unexpected" (that word again) stagflation of the 70's, so they set about on the neo-Keynesian path of socio-economics to explain the obvious, while trying to shelter their ego's and stature in society.

Its quite the juggling act, keeping the plates of perception vs reality in the air. If they didn't have willing accomplices & dupes in the defrauding of the American citizen I might fear for their very

We already know about their sanity ;-) 

Wed, 02/20/2013 - 20:25 | 3261701 rjs
rjs's picture

interesting to see the "monetary metals" being priced in fiat dollars..

Wed, 02/20/2013 - 20:57 | 3261786 disabledvet
disabledvet's picture

perhaps we should price them in "real" interest rates then...

Wed, 02/20/2013 - 20:20 | 3261687 mt paul
mt paul's picture


silver and seals

bears gotta eat ..

Wed, 02/20/2013 - 20:03 | 3261628 Moe Howard
Moe Howard's picture

Investment fun-day-mental for PMs:

Buy low, sell high





Wed, 02/20/2013 - 19:39 | 3261564 ebworthen
ebworthen's picture

Good thing I bought the dip today then.

Wed, 02/20/2013 - 19:30 | 3261545 WhiteNight123129
WhiteNight123129's picture

We are not in a bear market yet for Silver.


Wed, 02/20/2013 - 19:38 | 3261561 CPL
CPL's picture

Not when the Canadian mint sells 1/2 ounces for 40 bucks and kitco is on back order for physical.

Not like the ETF's can cover any one asking for their silver...ever.  With zero production happening except reclaimation from electronics in China and India all that paper is backed by nothing but a dude in a suit.

Wed, 02/20/2013 - 19:25 | 3261535 LongSilverJohn
LongSilverJohn's picture

I would imagine the CB's benefit from schemes to suppress the nominal price of PMs by maintaining "confidence" in the fiat currency while their proxies (the Bullion Banks) benefit by having a suppressed paper price that opens the door to the shrewd buying of physical metal.

The end game will be ETF's with nothing to back them, and an eventual collapse of confidence in fiat money.

All I know is that if the gold leasing and ETFs are pushing down the paper price, I want to be buying physical. That's why I recently bought 40 more Gold Eagles and every time I get extra fiat dollars, I buy ten more...

One question to options traders? How expensive is it to drive down the paper price to a level where you then make more money than you spend on the maneuver when you snap up physical? Do the numbers work out? Or is it based on an end-game that must result in default on the Comex?

Wed, 02/20/2013 - 20:06 | 3261635 slightlyskeptical
slightlyskeptical's picture

I think it is the lemmings just trying to catch a falling knife.

Hopw many people here puchased some options when the price fell?



Wed, 02/20/2013 - 18:49 | 3261433 ncdirtdigger
ncdirtdigger's picture

If the Beryanke pumps money to the banks, buying their worthless MBS, why wouldn't they do the Beryanke's bidding in keeping PMs supressed? One hand strokes the other.

Wed, 02/20/2013 - 13:04 | 3259888 Herdee
Herdee's picture

I'll continue to buy physical gold on big down days.Just ask yourelf one question: Do you trust physical Gold or do you trust and put your backing behind Washington politicians?Remember what's wrong with the system.Politicians are paid,they are paid to be elite power brokers.When you vote,you just rent them until the next corrupt gang gets in and screws it up even worse than the last mafia gang before them.I'll stick with Gold,it's as good of an insurance policy as I can get.Today,will be a privilage to contribute once again.

Wed, 02/20/2013 - 12:17 | 3259637 El Hosel
El Hosel's picture

Curious = Any day that the Dow is not down 500....  Yes, we have three bags full of "curious" in "the markets".

 Gold has been going sideways for almost two years.... Very Curious because that is how a real market normally consolidates gains.

Wed, 02/20/2013 - 11:47 | 3259480 Lewshine
Lewshine's picture

Just called my precious metals broker - Selling Silver at .65 cents over spot, two days for delivery. Says there is no material selling from secondary owners of PM (retail). This is the third largest PM Wholesale operation in the US. Must have a retail license to buy from them. He said that the two day time frame on delivery (usually you can walk out with product on day of purchase) was based solely on production and demand. Buyers exceed Sellers 5 to 1, AND the mints have slowed production based on government demand. THERE IN LIES THE "PAPER" PROBLEM. There is a concerted effort to destroy PM "paper pricing", AND anyone with half a brain could figure it out.


Wed, 02/20/2013 - 12:33 | 3259743 strannick
strannick's picture

Thanks for posting

Wed, 02/20/2013 - 13:20 | 3259960 fourchan
fourchan's picture

this is exactly where the masses are, our job as i see it is to not be one of them.


skip the ad and cringe at how stupid americans are today.

Wed, 02/20/2013 - 11:29 | 3259392 JOYFUL
JOYFUL's picture

Rather than opt for free enrollment in order to read your 'tentative conclusions'...I'll opt for b) which my guess is that JPM and the hammermonkeys are contracted with "certain Eastern buyers" to supply at certain price levels, and get a scaled bonus premium at every dip level down...

if you were committed to buying,(as in buying by the ton) wouldn't you prefer 1620 to 1680 and 1580 to 1620?

The wealth of the west is moving east...lock, stock n barrel...aided n abetted by the traitors in your midst. Even if you hold onto your stash, you'll be living in a third world country soon nuff.

Chew on that, then come up with a plan to get outta this thing alive...there's always a solution!

Wed, 02/20/2013 - 12:24 | 3259701 myptofvu
myptofvu's picture

I was thinking somewhere along those lines but I like your idea better. My theory was that if you are planning to buy by the tonnes then you could start selling ata loss to bring the prices down for your future aquisitions or "I'll lose a million today to save 2 million tomorrow".

Wed, 02/20/2013 - 11:29 | 3259391 orangegeek
orangegeek's picture

Gold and Silver priced in US Dollars is falling.  Why?  US Dollar is climbing.


And the US Dollar is up again today.

Wed, 02/20/2013 - 21:04 | 3261802 disabledvet
disabledvet's picture

there are two ways for interest rates to rise. one is for the Fed to actually raise rates (which they will not do for a VERY long time.) The other is for prices to FALL. by all means "keep stackin'" cuz my guess is the Banker has his eye on YOUR Government and not you...and is waiting to see whether or not it can meet its obligations.

Wed, 02/20/2013 - 11:13 | 3259295 IrritableBowels
IrritableBowels's picture

Why are the X-axes on the first two graphs on different scales?

Wed, 02/20/2013 - 12:13 | 3259476 Pseudo Anonym
Pseudo Anonym's picture

to show backwardation in gold for april futures

edit: the other graphs are prices and then number of contracts

Wed, 02/20/2013 - 11:04 | 3259238 lakecity55
lakecity55's picture

Rock beats Paper.

Wed, 02/20/2013 - 19:15 | 3261509 a growing concern
a growing concern's picture

But remember DHS's sage advice: scissors beat gun.

Wed, 02/20/2013 - 10:23 | 3259081 jeffgroove102
jeffgroove102's picture

I would feel better if for once, the people explaining the markets to me could tell me what my paper is going to be worth moving forward. It is not rational to talk about bear markets in metals and commodities without talking about actual money creation. Granted, even mises says that you cannot control where or what people spend money on, however, money is valued according to its SCARCITY.

Wed, 02/20/2013 - 10:41 | 3259135 Dr. Bonzo
Dr. Bonzo's picture

True dat. I don't really measure my PMs in dollars anymore. Since I've been buying / selling property over last few years I've started to measure PMs relative to home prices, and by that metric home prices have been annihilated. I also don't like this type of strictly linear thinking... scarcity is X, therefore Commodity Y must be value Z. That's all bs. There are an unquantifiable number of additional inputs that aren't factored in that affect price trends. And I think that last word is the key. Trend. PM's peaked at roughly 1900 / 49 respectively... and been in a downward trend ever since. Correlating it directly to M2 or M3 and Fed bs or production scarcity is nonsense. Buyer / seller sentiment, e.a. market psychology is a gynormous factor, manipulation of varying degrees... all this stuff comes into play. Markets have corrections. Markets _need_ corrections. This is exactly what the Fed _refuses_ to cop out to and has been fighting against for the last 10 years.

Look... we all know the deal. We know how this ends. Look at this way... if you missed out on the 750 / 9 price bottom in '08... this could the next best opportunity to load up. Personally... I can't wait for prices to come down more. I'm looking at Silver breaking down below a price support that's held up for almost 5 years and I'm seeing nothing but air below.... $20 for silver? Bring it on. I'll be buying with everything I've got. When the paper market implodes on this stupidity the prices will skyrocket like nothing you've ever seen.


Wed, 02/20/2013 - 23:42 | 3262175 cynicalskeptic
cynicalskeptic's picture

Even if they do manage to drive the paper price lower you can't GET physical at the lower end of the range.... last time prices were way down, premiums were way UP - IF you could find any for sale.


Wed, 02/20/2013 - 10:14 | 3259058 Notarocketscientist
Notarocketscientist's picture

When discussing Israel we need to look at the root cause of the conflict - have a look at this video The Israeli General's Son – the video Israeli does NOT want you to see was made by the son of the general who lead the 73 Israeli offensive - and later turned against Israel's foreign policy

A real eye-opener, pass this around

Wed, 02/20/2013 - 19:37 | 3261558 CJHames
CJHames's picture

Oh go fuck yourself.  Not a rocket scientist indeed.  Go peddle your anti-semitic, race baiting bullshit someplace else.  Prison Planet, perhaps.

Wed, 02/20/2013 - 12:54 | 3259845 exgop
Wed, 02/20/2013 - 19:35 | 3261551 Bandit und Buster
Bandit und Buster's picture




Wed, 02/20/2013 - 11:53 | 3259519 stiler
stiler's picture


but a Govt shill.

Wed, 02/20/2013 - 10:29 | 3259100 somecallmetimmah
somecallmetimmah's picture

Kzzzzzzz....huzzzahzzz...  *COUGH*! Wha???....


Wed, 02/20/2013 - 10:12 | 3259053 stiler
stiler's picture

"Expect Us."

Expect the unexpected-- isn't this a mantra of the times? So too w gold/silver PMs. You can't trust in anyTHING, and won't be able to for the rest of this age, which may not be very long.

Wed, 02/20/2013 - 10:04 | 3259037 Aegelis
Aegelis's picture

I know two things 1.) Buy physical now 2.) Sell later.  "C'mere sonny, grandpa is gonna tell you a story about when he remembers silver being $8 an ounce before the Valuation Awakening".

Wed, 02/20/2013 - 10:14 | 3259060 somecallmetimmah
somecallmetimmah's picture

Good luck actually *finding* silver around $30/oz.  The cheapest I see is $30 for 'junk' silver dollars (90% silver or .715oz)

I'd love nothing more than for it to actually approach 'zero'.

Wed, 02/20/2013 - 10:03 | 3259035 devo
devo's picture

Wall of worry.

Wed, 02/20/2013 - 10:02 | 3259030 I need more cowbell
I need more cowbell's picture

C'mon really? Curious? Hardly. The readership here knows what is going on, there are no markets, the gloves are off, the need to disguise control is gone, its all in your face now. They want to be in your face, its endgame and the need for pretense is long past. The psychopaths are most certainly enjoying every minute of this, enjoy drinking the tears of Turds, Turks, KWN, Sinclairs armies, who cry out for justice, it aint right, curse Blythe and Lloyd and Jamie.

When you KNOW the game is rigged, why oh why do we have article after article on every kind of "market" expressing shock? So buy your phizz, after food, etc and just sit tight. Or take your spare fiat to Veags and have a blowout, whatever, but to expect anything other that pure blatant control until the reset is silly.

Wed, 02/20/2013 - 11:10 | 3259278 Shell Game
Shell Game's picture

+1 Yep..


'I got a Fever. And the only prescription, is more cowbell!'  -Bruce Dickenson

Wed, 02/20/2013 - 10:45 | 3259149 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

ther's a stampede out of fiat; fuck what the paper market says; when comex defaults the game begins.  Take possesion.

Wed, 02/20/2013 - 11:01 | 3259218 Midas
Midas's picture


Did you notice it takes more fiat to get a bitcoin than an ounce of silver?  That means something doesn't it?

Wed, 02/20/2013 - 11:05 | 3259244 Papasmurf
Papasmurf's picture

It only means you're debating one fiat vs another.  Bit-con will fail just like all other fiat.

Wed, 02/20/2013 - 11:15 | 3259306 malikai
malikai's picture

Calling BTC 'fiat' makes you look like an idiot to anyone with at least half a brain.

Please, try your hand at a bit of reading comprehension before your fingers make you seem dumber than you should be.


Wed, 02/20/2013 - 14:36 | 3260391 silverserfer
silverserfer's picture

BTC has intrinisic value? Your up for biggeest idiot of the day on zerohedge. Digital curency is just a new addition to Fiat currency. Lay off the crack. 

Do NOT follow this link or you will be banned from the site!