Gold and Silver Sentiments Violently Diverged in 2013

Monetary Metals's picture

by Keith Weiner


There are two reasons why people buy gold and silver. The first is that they’re the monetary metals. Many people don’t want more than a certain exposure to the risks of the banking system. They hold dollars for liquidity and beyond that exchange them for metallic money. This money is not for trading.

The second is to trade or, more specifically, to speculate. They buy with the expectation of a rising price. The gold price, measured in dollars, is really just the inverse of the dollar price measured in gold. As the Fed abuses its credit, the quality of its liability falls. This liability—the dollar—has been falling in quality and price for 100 years. Measured in gold, the dollar is now just under 26mg. Or, measured in silver, it’s around 1.6 grams. Most people look at the inverse, the dollar prices of the metals, currently around $1200 and $19.50.

It makes for a great speculation, that the dollar will continue to fall. At least, it did until 2011. The gold price peaked in 2011 at $1900, and has since dropped 37%. The silver price dropped 60%.

One speculation strategy is to buy when something is going up. Today, there is clearly no upward momentum in gold and silver. The other approach is to try to buy when there's blood in the streets, as the old trader’s saying goes. OK, but is there blood in the gold and silver streets?

I write the Monetary Metals Supply and Demand Report, a free weekly letter that provides data and analysis of the constantly changing fundamentals of the gold and silver markets. The data shows that gold is significantly scarcer to the market than silver; gold has a small backwardation and silver does not.

For months, I have discussed my hunch that there just has not been the final capitulation in silver as in gold. I have seen the comments on my own and other articles, and in other online forums.

I couldn’t prove it, but it kept nagging at me. Then I put together this graph of inventory held in the two big Exchange Traded Funds: GLD and SLV.


Tonnes of Metal Held by the ETFs, Jan 2009 through Dec 2013
GLD and SLV tonnes of metal

The picture in gold is what you’d expect. Gold metal begins to move out of the GLD inventories around the start of this year, and it has been almost a straight move down. There is no sign yet of a bottom. Gold inventory is down 40% from its peak one year ago.

Silver violently diverged. As one might expect, silver held by SLV peaked on April 25, 2011, the day the price peaked. Metal began moving out of the ETF the next day. The level quickly dropped by 14%, but then stopped falling. Then, at the end of 2012, inventory began to rise. Though the silver price is down 60%, silver holdings are down only 9%.

The reason for metal to flow in or out of an ETF is counterintuitive. It has nothing to do with price moves. The flow of metal depends entirely on the spread between the prices of the ETF and the metal itself. Arbitrageurs buy metal and sell new shares, whenever the share price is above the metal price. They sell metal and buy back shares when the share price is lower.

The graph shows a one-way flow of gold out of GLD. This means that the price of GLD shares has consistently sagged below the price of gold. This corresponds to negative sentiment regarding this metal. By contrast, more metal has flowing into SLV than out.

In general, I caution against just this sort of analysis. It is easy to focus on a highly visible corner of the market and ignore numerous low-profile corners. Both gold and silver have vast inventories; there is no such thing as a shortage or a glut. Metal can move from one corner to the other without necessarily impacting price or anything else.

But in this case, the reason to study this chart is to understand sentiment among speculators. I suggest that sentiment in silver has not made its nadir, and that silver speculators yet cling to hope against hope that its price will shoot to the moon.

The irony is that my statement is controversial and contra the accepted wisdom in the silver community. If speculators had turned truly pessimistic about silver, then my statement would be uncontroversial, but advising people to buy silver would spark controversy.

One can never be certain about sentiment changes, but it’s a strong possibility that silver speculator pessimism rises to match that in gold. If this happens, the silver price could drop several more dollars. This is a time to be cautious with silver, though I never advise naked shorting a monetary metal.


(C) 2013 Monetary Metals

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SAT 800's picture

First there's data then there's an interpretation. I don't interpret the data this way. I think Silver People are more serious smaller people; Gold got a lot of attention from heavy weight fund managers who are notoriously running in flocks; and under pressure to perform "this quarter"; There's just more of that kind of buyer in the GLD than the SLV; less silver owners sold; but that doesn't mean they're going to catch up with the big gold players; it may equally well be the case that they simply aren't going to sell.

honestann's picture

After 12 straight years of gains, the predators-that-be decided they absolutely HAD to crush the reputation of gold and silver as "sure things", "money", "investment".

WHATEVER it cost the predators-that-be to crush gold and silver prices for a whole calendar year, from their perspective, it was worth it.  Why?  Because their entire scam depends on fiat, fake, fraud, fiction, fantasy and fractional-reserve debt, and for 12 years running anyone with the motto...

In gold we trust.
In silver we trust.

... looked very, very wise (and happy).

Very soon regular folks would start converting their fiat, fake, fraud, fiction, fantasy, fractional-reserve toilet-paper into gold and silver, and their entire scam would have gone down the toilet... like every single instance of fiat in the history of history has.

So, from their perspective, "they had to".  And, in fact, they did.

But they only delayed their demise for another few years.  They have achieved their goal, they've taken the shine off gold and silver in the eyes of the mainstream, and most likely this effort, as painful as it was for them, will suffice for a few more years... maybe even another 12 years.

Once January 1 arrives, their need to crush gold and silver ends.  Most likely they will not attempt another calendar year of price manipulation because probably they couldn't even do so if they wanted.  The predators-that-be have precious little physical gold and silver left in their paws, and what they do have is owned by 2, 5, 25, 100 different parties (some of whom are watching).

Back up the truck.

Silver will pass $50/oz in 2014.
Gold will pass $2000/oz in 2014.

Just watch.

wstrub's picture

Maybe they need cheap silver to continue seeding the sky with all their chem trails!

Dr. Gonzo's picture

It would take China 5 seconds to corner the silver market and that would tip off their intention to rid themselves of their dollar reserves. I imagine they want all the silver too but to get both you need to work on gold first and that takes time. Silver probably won't start circling the drain until most of the gold is gone.

Conax's picture

 The bullion banks are purportedly sitting on 51 million oz of silver all ready to deliver to whomever buys it, yet they can't cough up the December contracts earlier than this?  We are a few days from the end, and 56 notices yet to be served.

Why so much foot dragging with that mountain of bars in the warehouse?

Gold and silver are both hated, but they absolutely despise silver.. <$20 an ounce while gold was allowed to soar to $1900 and keep $1200.  Silver never got higher than 1/33 the gold price.  The mining ratio is currently 11/1.

The PTB hold some gold, too.  They secretly love it.  Silver they want dead, reduced to a greasy industrial commodity-- ONLY.  When the paper blows up, silver will be the detonator.  JMO.

DannyTX's picture

Central banks are loading up on gold vs. silver.  Personally I would diversify into some gold, except I am too afraid of our communist government someday telling us to redeem the gold for whatever they want to pay for it like they have done before.  I'm not talking about knocking on your door wanting it.  I'm talking about an order to turn it in.  Then what are you going to do?  

I believe that if that time were to come that it is less likely that they will also order us to redeem silver simply due to size and bulk.  However, silver will still be insurance against a failed Fiat currency.  


honestann's picture

Then what are you going to do?

Leave the country.

Oh, wait.  I already did that.  With my gold.

Silver is great too, but takes up a lot more space.  And if you try to move all your silver at once, your plane won't get off the runway.

exonomic halfbreed's picture

This could also be an indication that during this pullback, there has been more of an effort to push down gold by the chosen ones compared to silver.  Have you seen anything like the enormous dump of gold happen in the silver market?  I am refering to the mid april slam down in gold. 

honestann's picture

Can you spell paper manipulation?

Most certainly in silver as well as gold.

sablya's picture

What?  The gold price has since dropped 37%. The silver price dropped 60%.  So, yeah, I think we've seen an enormous dump in silver, despite the ETF holdings.

RaceToTheBottom's picture

Fed Reserve printing mixed with Fractional Reserve banking gives Banksters essentially unlimited power over the price of PMs. 

I wish it wasn't so, but it looks like they have much more power than even they thought, especially as their shirt is cleaner than JPN and EURO.

JeffB's picture

"Fed Reserve printing mixed with Fractional Reserve banking gives Banksters essentially unlimited power over the price of PMs." -- How so? Plenty of other countries have had fractional reserve banking and the power to print virtually unlimited amounts of fiat currency... but they've all lost the fight in the end.

Even if we're the cleanest shirt vis a vis Japan & Europe, what's to prevent all the idiots from going down together? Even the least decrepit horse in the line at the glue factory eventually becomes glue after all, though, regardless of how much better he might think he looks compared to the other hags in there with him.


bozzy's picture

US policy to de-monetise gold is now documented. Nuff said.

Who owns the Fed? Nuff said X 2.

Vint Slugs's picture

Why Silver can't go up.  Written 6 mths ago.

quasimodo's picture

"Legitimate, not Naked. When you read or hear about JPMorgan being a "naked" short 

seller in the Comex silver futures market (with intent to "manipulate" prices downward), 

consider two things. First, there is no such thing as a naked short (having sold more 

futures contract ounces than can either be produced in a year or than exist in estimated 

global above-ground stocks) in the futures market. "


Am I the only one who got fisted by a large red flag after reading that paragraph? 

cynicalskeptic's picture

Yeah....... GLD  is being Drained to provide physical in an increasingly tight market as eastern markets vacuum up gold.  Indian demand is stomped on by government and partially offset by silver buying.  So demand for actual physical metal is HIGHER but the paper games (huge unbacked short sale dumps) continue.......   

As long as the paper money supply expansion continues and governments continue to spend far more than they take in, PM's are and remain a store of value.  Those stupid Chinese are just wasting their $US in buying up tonnes of the stuff.

I wonder how many people the Fed is paying to post crap as part of their MOPE (management of perspective economics) efforts.  BTW - it's not working.  People can't 'feel better' about the economy and spent money they don't have when they're not working - hence the holiday sales drop.  Stating the obvious - the US would fare far better if it STOPPED OFFSHORING JOBS and forced all thsoe companies accepting government 'help' to REPATIRIATE JOBS instead of profits.  ALL the financial institutions that got TARP aid SHOULD have had to return all their Data Processing jobs and call center jobs - the ones they sent overseas in the last 20 years.  Instead they're now sending A/P, A/R and pruchasing overseas.  WTF?  We sent all our blue collar manufacturing jobs overseas and now we're sending the white collar ones?   And how about clawing back some of those unearned bonuses from the last decade - the ones that wen to all the execs that blew up the financial system?   Instead we're getting an inflated stock market, fake economic statistics and non-stop 'things are better' propaganda in a futile attempt to make people think a recovery is under way. bwahaaaaaaaaaaa

SoberOne's picture

Dollar cost average and btfd. Simple...

NoWayJose's picture

This was probably just the story sitting on the top of the pile of pre-written stories that are being held aside for release on days when silver and gold move up.  Like most of these stories, they tell more about the current position of the writer (or speaker) than they do about the market.


NoWayJose's picture

"But in this case, the reason to study this chart is to understand sentiment among speculators. I suggest that sentiment in silver has not made its nadir, and that silver speculators yet cling to hope against hope that its price will shoot to the moon."

I'm sorry - but there are few, if any, speculators left in PMs - unless you consider the ones that are shorting it.  There are no 'long speculators left hoping silver goes to the moon'.  The 'hot money' (at least in the US) is not in PMs.  Buyers today are from Asia, Asian central banks, and US/EU citizens who foresee the inevitable end of fiat currency.  At some point that will come, and the 'hot money' will pour back into PMs.  Few buyers today are hoping for a 'moon shot', and many would like to never see that happen.  Why?  Because it would mean the collape of everything else.  Buyers today are not speculators looking to 'make wealth' off PMs, but rather are looking to 'preserve wealth' when the collapse comes.  The talking heads, bloggers and newsletter writers never seem to recognize this... nor are do they see how thankful many buyers are for the lower prices...

ltsgt1's picture

Exactly, there are very few " long" speculators left in PMs and speculators don't take delivery. If physical gold flow out of the GLD, the vaults should be stacked to the ceiling with unwanted physical. Yet, these unwanted gold are disappearing at an alarming rate in the land of the Oz.

disabledvet's picture

just say "gold" and you get "long speculators." look at the mining plays: obliterated this summer, everyone levered up to buy. you think an equity holder has first dibs on product? yeah, right. the bank that rolls over the debt is what keeps the mine running. almost all gold in existence today has been mined since 1980. can gold and silver moon shot from here? I would welcome it if they did. I doubt it will happen. interest rates are still way too low...that says to me default risk and lack of frowth are the problems (More Detroits coming) not prices paid. not that prices haven't moonshot here. it's just that production has increased even more as the USA moves beyond "economies of scale" to a "scaled economy."

Canadian Dirtlump's picture

Price controls always fail eventually, but I got to hand it to them, they have been keeping the mirage going longer than I ever expected them to.


With respect to the ETF thing - the thing I fear is that they have alot of ammo in SLV to fuck with stackers. I guess you gotta look at it as a gift though like you say. On the other hand, who knows how much slv is actually in slv.

logicalman's picture

1. Have to agree with 'keeping the mirage going longer than I ever expected them to'

2. Got to hand it to TPTB they can lie better than anyone I've ever run across.

3. As for the price of metal - one day the price of not having any will be huge, I just wonder how far away that day is.

4. Fuck paper promises - see item #2

disabledvet's picture

cars are backing up on dealer lots as "ninja loans" go full retard. I think the first major correction is coming soon. already "divergences" are appearing. not everything (Ford for example) is participating. As the winners get fewer and fewer the need for them to outperform becomes greater and greater (Twitter is a textbook bubble play.) The dollar has now taken out Turkey. "Yet another entire country wiped out." If that spills into Europe "the last leg of dollar weakness will be taken out." (save perhaps Cable.)

ltsgt1's picture

SLV still has the physical silver because the Venezuela, German and Chinese governments haven't asked for tons and tons of silver delivery.

superflex's picture

Posted on the day silver moves up $0.50 in 15 minutes.