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The Curious Case of Falling Gold and Silver Prices
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.
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.
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.
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.
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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eat more seals...
Looks like GLD needs a good cleansing.. if yah niggas don't mind could you hold off chasing phyzz till the 1300's ? been waiting forever for this rare, last opportunity to complete my break away from the fiat world or as much as is reasonably possible anyway.
http://fiatflaws.blogspot.com/
BTFD
Dips? What dips? Prices only go up, now in this Market Manipulation War. I'm surprised I'm not hearing more "dollar cost average."
head and shoulders blablabla
I really dont believe in TA in this manipulated market
Check out the head and shoulders on gold miners with a target at the 2008 lows. Yikes! Maybe deflation isn't finished after all.
There's heavy selling, the rising interest is bears coming into the market to sell. The big banks take the other side and hedge out their exposure. But don't expect a big "JPM is NAKED LONG SILVER!" panic to break out. There are signs that the selling is overdone, but crashes also happen in these states.
As for whether inflation or deflation is coming, I leave it to Mr. Frost.
Some say the world will end in fire,
Some say in ice.
From what I've tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.
There is no deflation. There never was. Stocks and gold have been rising for the same reasons. Massive money supply increases.
http://research.stlouisfed.org/fred2/series/BASE
Now gold is set up for the most massive rally since this data has been recorded:
http://www.gotgoldreport.com/2013/02/got-gold-report-courtesy-release-of-our-entire-february-18-report-.html
You are crazy if you are not buying this dip.
@quin---there is absolutely deflation....which is exactly WHY the fed and other cbs have been printing around the world.........asset deflation is real, and its going to slam holders of pms just as it will slam the holders of every other asset held around the world...............
Don't try to fight the deflation with your mind, that's impossible. Instead, try to remember that there is no deflation.
http://images.search.yahoo.com/images/view;_ylt=A0PDoQwe7SRRrxMAVDqJzbkF...
Long link, sorry.
Asset deflation is real. But I am betting on PM's because it is the central banks response to asset deflation that I am anticipating. 85 billion a month in MBS is a hard bite against deflation. If deflation were here to stay, why buy MBS?
And btw, can you name one sovereign entity, state, nation, or gov't that failed in the last 1,000 years due to deflation?
when the present dollar collaspes
the fed will do what germany did
issue new dollar
backed by mortages ....
sheesh,
what can one say to this logic? i am w/o words
What can one say? One can say this: "In a deflation, money becomes relatively scarce and hard to get. Debt becomes onerous and hard to repay. Now ask yourself the question, Is gold a form of debt, or is it a form of money?" Paper dollars do not extinguish a debt, they merely transfer the liability. PM's actually pay the debt.
Or you could just look at how precious metals have performed in Depressions. In the Great Depression, gold went from $20.67 to $35. That's a gain of 69%. Germans survived the Weimar collapse in part by saving small silver coins which grew enormously valuable as von Havenstein's presses went into overdrive.
When money is scarce, real money trumps Zim dollars any day.
...Or you could just look at how precious metals have performed in Depressions. In the Great Depression, gold went from $20.67 to $35. That's a gain of 69%....
That's some interesting logic you got yourself there. Precious metals didn't 'perform' - the only reason gold 'went' from $20.67 to $35 is because FDR The Fascist confiscated it from everyone before arbitrarily changing the number of dollars it took for foreign CBs to redeem their USD for Precious.
Gold didn't go up - the dollar went down.
Gold didn't go up - the dollar went down.
No argument; it's the same thing. You can price gold in dollars, or you can price dollars in gold. The trouble begins when there is no dollar price for gold.
Kito where are you seeing deflation?
I am not defending PM's here. They are a falling knife right now. If stocks and oil and copper and food were plummeting as well I'd be more open to the idea of deflation.
It looks like inflation to me with a side of beat the shit out of pm's to scare people away.
This is work is right up there with G. Edward Griffin's Creature from Jekyll Island and similar works in terms of peeling back the layers of government disinformation, propaganda and criminality to reveal what could well be the nasty core of it all.
==========
Eric DeCarbonnel’s presentation on the US Treasury’s ESF based on his extensive research. Part 5 gets into what he describes as the Deflation Myth.
http://www.dailymotion.com/video/xn4a62_exchange-stabilization-fund-parts-1-to-4-eric-decarbonnel_news
http://www.dailymotion.com/video/xn4i9o_exchange-stabilization-fund-part-5-eric-decarbonnel_news
• The Exchange Stabilization Fund (ESF) was created (without oversight) by Congress in the 1930s to ensure support of the Dollar. It has done a lousy job of what it was supposed to do, as the Dollar has lost almost all its value.
• The ESF was put in the hands of the head of the US Treasury and the US Treasurer has absolute power to do what he wants with the fund.
• As a result, the ESF has acted as a giant slush fund that has funded the growth of the American Empire over the past century against the will of both Congress and many bankers in private industry.
See more: http://www.thedailybell.com/3343/Fearfully-the-US-Treasurys-Secret-100-Year-Old-Fund-and-Its-Dark-History-Has-Been-Exposed-
fonz, as per this article, why is it that when gold rises for 12 years straight, its the normal course of things, but when it goes down, its because its manipulated??? perhaps it is, perhaps it isnt, but for people to say with such certaintly that its down due to the levers controlled by the wizard of oz is silly......im having a hard time digesting the idea that there is this alleged MASSIVE shortage of gold and silver and yet prices are at or below where they were two years ago, and its because of manipulation..perhaps king world news sells a bit of propaganda itself??????........................there are absolutely deflationary forces at play.....tyler has pointed this out in a collapsing shadow banking system........and if you look at commodities over the past several years, they still have not recovered from the 2008 high.............look at the rogers index etfs rja and rji...BOTH BELOW THEIR HIGHS, JUST LIKE SILVER AND GOLD.........look at the base metals etf dbb......also below its 2008 highs.......oil well below its 2008 highs.................sorry fonz, but im not seeing anything but powerful deflationary forces at play here, which the fed is desperate to pry itself free from........................
Sovereigns are buying up gold left and right.
The more gold they have, the more value they can assign to their fiat (printing).
They only profit if gold goes up. (long term)
The question is, does weakness in EU mean a "comparative" strength of the USD (bad for gold), or, $$$ leaving EU to safe haven, gold and US equities (good for gold)
They only profit if gold goes up.
Using the word "profit" in relation to gold is a grave error. I see your point, but the "price" is ephemeral.
Using fiat to measure gold value is equal to the use of a rubber ruler.
Are you arguing paper or actual metals?
Keep that in mind when you spout off about price movements.
"There is no law of nature that says the prices have to go up, but if they go down it must be artificial somehow."
Pretty sure you read that wrong.
Deflation is a shrinking money supply. Deflation is not a bad economy. You are crazy if you are not buying this dip, even if it is just to take the other side of dumb money which has put on a historic paper gold short.
when the assets that are not marked to market continue to be obliterated, hence digital dollars disappearing, all of the bennybucks being created is just to plug holes....again, look at world commodity prices since 2008, im not seeing any effect from all this printing......why??? because all of the printing is barely keeping up with digital dollar destruction.......................
The clearest inflationary signal I see is at the grocery store. Almost all containers are shrinking while the price is rising. Quality is also dropping as food producers seek cheaper and cheaper ingredients. Textiles being used for clothing production are getting thinner/cheaper too.
You are defining "public" inflation - not economic inflation. Price vs money supply. This size/price game has been going on for 50 years. The size of (for example) candy bars has been falling while the price has been rising almost from the start. This is true of almost every item except cheap overseas crap and technology where the bang for the buck improves year after years.
Everyone is missing something critical here, although Kito is most nearly on the right track:
It's true that M2 and other aggregates are expanding like crazy, along with the monetary base (Fed's "portfolio"). But that does NOT mean that money supply is increasing.
Why not? Because, in a system powered by a fractional reserve multiplier, true money supply is not merely the total credit created to date. It's total credit TIMES money velocity. But M2V has fallen off the chart. It's never been this low before:
http://research.stlouisfed.org/fred2/series/M2V
See, banks count both their reserves and the money they loan out as assets. The banks they loan to also count the borrowed money as reserves and loan assets. That's how $10 billion in new Fed credit turns into $100 billion in the system.
This is what the idiot Krugman means when he babbles on about the "transmission mechanism" being "broken". More so-called "money" is on hand than ever before, but IT ISN'T MOVING. The TBTF banks are parking all their capital (except for their bonuses) at the Fed. The wealthy are sitting on their money or smuggling it into offshore cloaked locations.
Listen carefully: ALL measures of money in this system are illusory and useless. They can never know how much money is really on hand because they have no effective metrics for calculating velocity, or "turnover". Without knowing just how fast the money supply is turning over, you have no way of knowing what the true money supply is.
So Kito is ultimately correct. As junk paper goes bad, money disappears. The Fed replaces it with new 0% "capital" but that money goes nowhere, since poor busted Shitibank must hold it in reserve to avoid falling below tier capital minimums. Unless the banks keep lending, true money supply is collapsing. That's why all the giant banks are fully capitalized with pristine balance sheets, yet Wal-Mart sales are imploding and Kraft Foods gross revenues are off 12%.
Saith Dimon and Blankfein: "Money for me, but not for thee."
thank you imminent!!!!!....thank you for couching my argument in intelligent terms ;)...that is precisely my point....which i didnt convey as well as you since i was feverishly junked while you get the gold star of the post......................
Don't mention it, kito. I'm just here to sprinkle clarity around and drink the free booze.
I get the point that Kito makes and I admit it continually makes me scratch my tin foil hat in curiousity. But as kito points out.....it's been 5 years. So they can just keep replacing vaporized dollars with new ones with no reprecussions as asset prices absolutely trend upwards?
The answer, fonz, is no. I could expend a bunch of paragraphs explaining why you cannot go on replacing destroyed capital (remember that real capital is savings, aka deferred claims on goods and services) with Fed credit, without terrible consequences. I'll just point out that when you issue credit, you are printing up a claim on goods and services before the work is done (value is added) that justifies the claim on goods or services. That's inevitably inflationary, but it takes time to show up.
Instead of doing all that work, I'll refer you to Lee Adler of the Wall Street Examiner, who answers your question at length and with great understanding:
http://www.financialsense.com/contributors/lee-adler/bloomberg-ignores-f...
Here is an article from February 10, 2010, or 3 years and 10 days ago that is rather pertinent to this discussion:
http://www.cbsnews.com/2100-500395_162-6193834.html
So, here we are 36 MONTHS later..... Then 72 Months, Then 144 Months, just like our friends in Japan.
Nice post. The last 'estimate' I read of the TBTF reserve base was $1.7 Trillion. With the typical fractional reserve leverage of 10x, I wonder under what circumstances the $17 Trillion reserves are unleashed on the market, if ever?
Meanwhile, as loans are paid off, banks lose their profit base and require even more free gifts from Ben the Magnificent.
At some stage, the banks will have to start lending again. I look forward to seeing how Ben manages to mop up even a small percentage of the base money he's been creating.
Kito I said I was punting on th PM debate because there is no point in arguing that those metals are down for whatever reason.
I was focusing on falling prices. I don't see what you evidently see. Benny bucks and digital dollars vaporizing etc. I realize commodity prices are not at 08 levels but they seem to be heading there, not the other way.
Fonz, its been nearly 5 years. And MASSIVE printing hasn't brought commodity prices past their peak.....what would be the cause of this?
the economy has never recovered but the fed has boosted asset prices. i don't see banks vaporizing and runs on banks. you and i are just wearing two different colored tin foil hats i guess.
thats a great way to put it fonz.........i say ice age, you say massive meteor...in the end.....its still the same..................btw, see imminent's post a few down from here to get an idea of what im talking about from somebody smarter than me.....................
Exactly. As Kyle Bass put it once you get to the point of inflate or default, one usually causes the other.
Who knows anymore man. It does feel like we are finally at the edge of the cliff.
Because the TBTF banks with real and notional derivative losses are sucking every bit of this printed money into reserves. Monetary velocity is almost near zero. I'm no economic rocket scientist, but I believe this has a very real impact on hiding 'market' inflation. The three indicators that can not be hidden by paper market games are, as below 1) Real food prices, 2) Real clothing/textile prices and 3) minimum wage hiking.
Honest question: Is it deflation, systemic monetary 'price stability' or TBTF solvency the Ctrl-P is countering? All of the above?
p.s. I have no idea why you are being down-arrowed, it's a great conversation to have..
He gets down arrowed because he is wrong, that's why.
We've had this conversation hundreds of times here in the last 3 years as inflation has gotten much worse, not better.
bay, ive only been here a year and a half ;)---and raw commodity prices have not been skyrocketing as i stated before...look at all commodities...base metals...oil....gold....silver.....etc.....we are not breaking through any new highs since 2008....THAT IS 5 YEARS!!!!!!!!
kito, I was referring to inflation/deflation debate in general.
No new highs since 2008? Huh? Gold traded down to $692 in 2008. It never touched those levels again. Gold hasn't been below $1000 since Aug 2009 or below $1200 since Aug 2010. Above $1400 the last two years straight. The longterm trend is still clearly up.
http://www.kitco.com/charts/popup/au1825nyb.html
global depression slams demand? consumer credit stagnating/deleveraging? the fact that they are this high in light of falling demand would suggest liquidity infusion.
There is a bad economy and an insolvent banking system. There is no deflation. Deflation is a decrease in the money supply, it is not the same thing as a global depression or a bad economy. You don't fix global depression with printing. You fix it with business and government climate change.
In Weimar they said they had a shortage of currency. They had the most massive debt in history to pay off. But guess what? No deflation. They had hyperinflation.
You can make that deflation bet if you want. But you are going to get smoked like every other bear out there. I suggest you review this again:
http://research.stlouisfed.org/fred2/series/BASE
That is as much money as existed in 1980 that was added just last month.
I do agree with Quin that deflation is a decrease in the money supply, and not a decrease in asset values. But allow me a few thoughts...
How is the world seeing it? If 90% of the population is wrong on what money and inflation is, the 10% who's right could suffer the consequences of the 90%'s imbecility no matter what. Money is a social convention, and gold's status as money could be in jeopardy on this basis if the sheeple and their masters choose that its not money.
My two cents is that governments and their puppet central banks know that they have no other way than gold to save their butts, but they will crush everyone first and make sure they own all the yellow stuff before they change course on money definitions. Fasten your seatblelts. In the most extreme case, those who hold through the storm may emerge as winners, but you may have to hold until it reaches very low amounts in fiat value before value returns... through government edict (remember 1933)... because that's what sheeple listen to.
I disagree entirely. I don't think there are any elaborate plans to manipulate prices for this or that odd reason. The FED and government are and have been for some time in a completely reactive mode. They're bouncing off walls, trying this, trying that, debasing the currency because everyone else is and it has to be right. They're financing huge deficits because that's the only way to keep the ball bouncing. Gold and silver prices go up and down based on many factors - the least of which is grand scheme to force it to a certain level.
If central bankers do want gold to drop in price then why have they been so feverishly buying it the last few years? Nobody buys an asset then turns around and drives that asset into the ground. It's all ad hoc, fly the seat of your pants actions that have the appearance of planning.
...If central bankers do want gold to drop in price then why have they been so feverishly buying it the last few years? Nobody buys an asset then turns around and drives that asset into the ground.
Umm.. are you genuinely this stupid? They suppress the price of gold to increase the perceived value of their only product - fiat currency. They could care less if the gold price drops and 'they' suffer some paper loss.
Furthermore I don't see why people see central bank gold buying as being bullish. CB gold leasing to the bullion banks is the primary mechanism of price suppression. The more CBs hold, the more the BB can flood the market with paper.
Your statement holds true in real markets:
Nobody buys an asset then turns around and drives that asset into the ground.
But governments and central banks don't care much about the "price" of precious metals since they buy it with free, printed, fiat money anyhow. I'd trade water for gold any day of the week. Same difference.
cart, horse, backwards