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Supply and Demand Report: 11 May

Monetary Metals's picture




 

by Keith Weiner

 

This was another short week, with Monday a bank holiday in the UK.

Through Tuesday, the prices of the metals seemed to want to hold onto the increase that was sparked by an unemployment report. It wasn’t until Wednesday that the prices began to sag, almost but not quite to the pre-unemployment report levels again by Friday.

We are not going to lament the folly of man nor trader. We are not even going to comment on the accuracy, or lack thereof, of the unemployment data. We are simply interested in the evolving dynamic between the fundamental setters of the prices of the monetary metals and the speculators who are trying to front run them.

Read on…

First, here is the graph of the metals’ prices.

            The Prices of Gold and Silver
Gold and Silver Prices

We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can’t tell them whether the globe, on net, hoarding or dishoarding.

One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.

Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual production can be measured in months. The world just does not keep much inventory in wheat or oil.

With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply. Everyone on the planet is potential demand. At the right
price. Looking at incremental changes in mine output or electronic manufacturing is not helpful to predict the future prices of the metals. For an introduction and guide to our concepts and theory, click
here.

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio moved up this week, ending about 67.4.

The Ratio of the Gold Price to the Silver Price
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 terse 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

The dollar is up slightly, to over 24mg. The cobasis is up slightly.

We have previously discussed the extraordinarily high level of the gold cobasis across all contracts. It is not in backwardation, but it’s new and different in the post-2008 world to see such a high cobasis (around -0.1%) so far out from the present date. This is evidence of a tight gold market, and suggestive that the price could go higher.

What is interesting to note is that we are in the midst of the contract roll. Those who are long gold are selling their June contracts and if they want to remain long gold they can buy August or a farther month. There is a famous scene in a Sherlock Holmes story, where the dog does not bark in the night (which proves the criminal was known to the dog).

This is the contract roll, which seems not to be able to shove the June cobasis over the zero line. The market is tight but perhaps not that tight.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
Silver

The cobasis fell as the dollar fell (i.e. silver price rose), showing the move was speculative. It ended the week slightly higher than it ended last week. Not only is the silver cobasis four times lower than gold’s, but the next month is almost twice lower than that. Gold may be tight, but silver not so much.

We saw one headline on Friday that silver is in backwardation. Not from where we sit, though the July basis is negative. Our definition of backwardation is strict: when one can sell metal in the spot market (bid) for more than one can buy it in the futures market (ask). This is because we are looking for an actionable trade—to decarry.

There is no profit in decarrying silver today. We promise to bellow from the rooftops when, once again, there is.

Keith wrote an article for Forbes that those interested in gold and silver may enjoy, Why Did Both Silver and Gold Become Money?

 

© 2014 Monetary Metals

 

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Mon, 05/12/2014 - 15:58 | 4752016 SAT 800
SAT 800's picture

Nice an entire page of ignorant delusionary meaningless drivel. The great minds of Zero Hedge strike again.

Mon, 05/12/2014 - 13:36 | 4751380 Hannibal
Hannibal's picture

We have been living under the UNITED STATES CORPORATION which is owned by certain international bankers and aristocracy of Europe and Britain. 

1871, February 21: Congress Passes an Act to Provide a Government for the District of Columbia, also known as the Act of 1871*

"With no constitutional authority to do so, Congress creates a separate form of government for the District of Columbia, a ten mile square parcel of land (see, Acts of the Forty-first Congress," Section 34, Session III, chapters 61 and 62). 

The act -- passed when the country was weakened and financially depleted in the aftermath of the Civil War -- was a strategic move by foreign interests (international bankers) who were intent upon gaining a stranglehold on the coffers and neck of America. 

Congress cut a deal with the international bankers (specifically Rothschilds of London) to incur a DEBT to said bankers. Because the bankers were not about to lend money to a floundering nation without serious stipulations, they devised a way to get their foot in the door of the United States."

(ALL CAPS is a corporation, your birth cert. is a 70 year t-note)

http://theunjustmedia.com/Banking%20&%20Federal%20Reserve/The%20united%2...

http://thecommonsenseshow.com/2014/05/11/america-sold-out-the-most-heino...

Mon, 05/12/2014 - 13:14 | 4751300 ebworthen
ebworthen's picture

There are no real prices for Gold or Silver while the paper casinos are in business.

Mon, 05/12/2014 - 12:47 | 4751204 elwind45
elwind45's picture

Than how come gold cant re trace above 50% of the recent decline? It looks like its topped twice and needs six months of less supply from any of your buddies?

Mon, 05/12/2014 - 12:23 | 4751118 Jack Sheet
Jack Sheet's picture

"the graph of the metals’ prices."

The "price" data is of course, impeccable.

Mon, 05/12/2014 - 10:19 | 4750611 Quinvarius
Quinvarius's picture

This guy's articles make me LOL like no other.  He looks at a small part of something he doesn't understand.  Then he makes it his whole philosphy.  That somehow licenses him to invent words and concepts for shadows which don't exist.  To top it off he attempts to desimplify a very simple issue with big words and extended flowery prose.

Dude, the only people that carry trade gold are big bankers who can borrow it for zero percent form the Fed.  And guess what?  They don't carry trade it.  They use it to bomb the markets for derivative profits.  NO ONE trades the way you describe.  NO ONE.  That is like saying bond traders give a crap about interest rates.  THEY DON'T.  They care about the market price of the bond.

The art of writing is about trying to be understandable.  You are turning a simple concept into complete nonsensical gibberish.

Mon, 05/12/2014 - 09:08 | 4750412 AdvancingTime
AdvancingTime's picture

Prices under the pressure of changes in supply and demand can be a lot like a carnival ride. By this I mean fast and abrupt swings can take place and often we see prices go to unimaginable extremes.

It would be better to say changes in "supply or demand", we should fully realize the market works best when at least one side of the equation remains somewhat stable. More about how inflation effects supply in the article below.

http://brucewilds.blogspot.com/2014/02/inflation-can-effect-supply-and-d...

Mon, 05/12/2014 - 12:55 | 4751229 elwind45
elwind45's picture

Like when the largest producer just pulled off a major land grab and needs some quick financing from his buddies the Chinese who back door dollars to the regime? DID THEY FIND A SILVER SUBSTITUTE?

Mon, 05/12/2014 - 08:59 | 4750384 MFL8240
MFL8240's picture

What is the purpose of this bullshit?  Nothing on this page accounts for manipulation and fraud by the Bullion banks.  No graph will affect price and no amount of Bullion matters now till they realize the paper dollar is worthless!  These so called experts have been wrong about Gold and Silver for 3 years because charts are bullshit when you live in a world of corruption and outright fraud by big banks and banking cartels!  You cannot chart deception or money printing!

Mon, 05/12/2014 - 14:10 | 4751502 SoDamnMad
SoDamnMad's picture

Hey stackers. Need some advice. Is it better to buy  coins OR good delivery gold bars in the 1 oz or 50 gram bar.

Pamp or Valcambi

Mon, 05/12/2014 - 09:08 | 4750415 Bindar Dundat
Bindar Dundat's picture

The only real questions are: who is perpetrating the fraud and why?  

 

I think it is the China/Russia pact keeping the price low so that they can buy the physical.

 

 

Mon, 05/12/2014 - 10:31 | 4750643 RaceToTheBottom
RaceToTheBottom's picture

China and Russia acting on their own? 

There have to be many players, each acting on their own motivation.

  • China and Russia wanting gold, probably to be included at a higher ratio in the upcoming new currency.
  • US, cause the FED is fighting gold to try and make the dollar to last long enough to push the SDR to fruition. 
  • Wall Street cause they make a % on everything you do and when creating money has no cost, profits are infinite.
Mon, 05/12/2014 - 13:05 | 4751265 elwind45
elwind45's picture

Or the Fed fears hiking rates due to past currency problems with debtor nations! The Fed fears too much money COMING IN and not going out! WHO EVER CONVINCED YOU THE DOLLAR IS ABOUT TO COLLAPSE HAS INTERDUCED A MASSIVE BRAIN FART IN YOUR HEADS!

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