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Gold and Silver Supply and Demand 2 Nov
by Keith Weiner
Woe unto the gold speculators, and a curse laid upon the house of silver.
At least, that’s how it may feel. In more clinical terms, the gold price fell from $1,230.90 to $1,172.59, or $58.31. The drop this week was 4.7%. The price closed the week below the level set after the crash of 2013, which was $1180 (by the way, an intraday dip). The gold price has never closed a day below $1188 since 2010.
The silver price fell from $17.17 to $16.13. $1.04 is 6.1%. It’s never been lower in years, except briefly in 2010.
On April 9, we said:
“The neutral price of silver is in the $16’s today. If the price overshoots as far to the downside as it is now stretched to the upside, we could see silver with a 12 handle.”
We got hate mail.
In the first place, one would hope that people don’t shoot at messengers. We are of the firm belief that gold and silver are money, and the paper issued by the Fed is not. At the same time, we argue that this view is not a trading strategy. For trading, we look to market data.
Second, we were right. While other analysts called every blip with renewed forecasts of $50 and $250, the silver price has spoken. It had a false breakout in June, and has been falling steadily since then. It has traded with a 15 handle this week. Incredibly, the fundamental price we calculate for silver is still below the market price.
To see the fundamentals, read on…
First, here is the graph of the metals’ prices.
The Prices of Gold and Silver
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, is 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, and under the right conditions. 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. It rose a full point, or 1.4%. Our original call back in 2013 (when the ratio was around 52, and most analysts were calling for it to fall) was 60 and maybe 70. We later updated that to 70 and maybe higher. Most recently, we updated it to 75 and maybe 80. Early Friday morning, the ratio hit 73.96.
The Ratio of the Gold Price to the Silver Price
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
Look at that run up in the dollar. It’s impressive!
As recently as Oct 20, the price of the dollar was under 25mg gold. Now it’s over 26.5mg.
Along with this rise in the dollar price (which most people think of as the fall in the gold price), has been a rise in the scarcity of gold. We now have a substantial positive cobasis—i.e. backwardation—in gold.
We calculate a fundamental price of gold some $48 over the market price. This does not mean that the price couldn’t drop further, but it does tend to apply an upward pressure to prices.
Now let’s look at silver.
The Silver Basis and Cobasis and the Dollar Price
The dollar rose even more sharply in silver. It was 1.81g silver at the end of last week, and now 1.93g. In July, it was 1.45g.
The cobasis is up sharply, and December silver is now also quite backwardated. There are some key differences between silver and gold, which we shall not elaborate here. Thus we calculate the fundamental price in silver at $0.77 below the market price.
In most of the little price moves in the past few years—do we dare assume it’s the new
normal?—the cobasis (scarcity) has moved proportionally with the dollar price (opposite of the metal price, measured in dollars). In other words, at lower prices the metal becomes scarcer and at higher prices it becomes more abundant.
This week, the metal became a little scarcer but the price fell more than a little. Don’t be fooled that the price drop was caused by high frequency trading, low integrity manipulation, or zero clothing shorting of futures. It was caused by selling of futures and, just as importantly, physical metal.
© 2014 Monetary Metals
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Reading this column was like reading TF Metals Report,
But without Turd's Yellow-Hated sense of Humor or Humility.
I gave this guy a number two
Gold = shiny lead
Silver = dull lead
Both are dead money.
The entire article speaks to how broken the system is. It assumes that the financialization of the markets, and gold in particular, is a normal state.
I would argue that financialization of commodity markets, which allows a parasite class to suck off of the productive class, is an abomination.
At this point it is most likely exceedingly difficult to extricate ourselves from the banker induced hell and to make productive human beings out of the elitist parasites. (IMO, they would have to admit that they are the problem and change ... as if!)
Bummer for humanity.
Yeah, silver is going down and I'm buying! Don't think for a second that $5 oz isn't possible because it is and I'll be buying because the silver paper market is crashing and then the disconnect between paper and phyzz will be complete. Oh and did I mention, I'm BUYING......
Are you buying?
While I tend not to speak in fundamental terms (because I believe that if there is a threat of lower prices, the banks will just create more money out of thin air, trade the fresh paper for the excess, stick it under a mountain and restrict supply), however, the largest use for silver these days is in solder for electronics (now that photography is digital). The trend in solder for electronics has been to reduce or eliminate the silver simply because it IS so expensive compared to other metals, such as tin, lead and copper.
The more price rises, the greater the incentive to eliminate its use ... bummer for silver whores.
dude thats so not relevant or accurate
since photography's decline, the demand has been more than replaced by medical applications and solar cell production. as for solder, silver isnt economical for large electronic items, sure, but for micro/nano applications silver is highly used and valued for its conductive efficiency - tin lead copper arent as efficient or reliable
"We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding" - Really? Who is "dishoarding" physical???? Answer: Nobody. The only "dishoarding" is being done with fake paper.
In the short term PMs are always scarce but in the long term they will be plentiful. Once asteroid mining becomes viable, gold, silver, rare earths and all the rest will be cheap. Until then they will be ever more scarce.
Mmmm, there's so much I could do with this post...the temptation is great.
But I'm just gonna leave it alone.
Look at all the hangerson left in the dead gold trade.
All thanks to the pumpers pumping Weimar disaster instead of admitting the markets were the place to be as they go up almost 300% and now the USD is rocketing higher.
BTFD you said. You have destroyed yourselves. It's time to call it.. enough already
You just keep hanging on. Why? Instead of flaming the truthers who teach you the truth. You lsiten to KNIG WORLD NEWS who ahev destroyed your families and your savings??
Not even sayign the gld pumpers here you haev destroyed you... You should be postal on them by now...
I don't get it. Are you sick?
You were proven wrong time and time again and now. Gold is a doorstop nothing more. It may have it's day in teh sun, but by then you'll be broke in a cardboard house and the pumpers heres will be flush as they move from the market pump back to teh gold pump....
then you'll buy the indexes at 20K and 2500 and then get whacked there....
Listen carefully. You are way out of your league and have been played by cons..
Nice to see you back trolling again. Spaulding is back too. Where is Math Man?
Consider the big picture. The Fed's strategy is to rid the US of ALL .gov held physical gold. This would include Ft. Knox and the like. When the rest of the world finally says they want to trade in gold instead of dollars thats fine, except the US gas none but only USD. What are they gonna do? A world gold standard requires all parties to have some or it doesn't work. Hence our USD debt notes will have to still be accepted as they are, backed by gold or nothing. The rest of the producing world can't just stop selling their products to their biggest customer just because that customer doesn't have gold. They will continue to take debt, which is all we got....
A world economy requires all parties to MAKE stuff too, that hasn't stopped the US from dominating.
But at some point, the rest of the world will get sick and tired of the breed of 'capitalism' we are exporting. To think the world wouldn't turn its back on us and leave us behind is being too optimistic. We could very well end up locked-out of some future new global arrangement, and kept in check (and isolated) by some new balance of power.
There'd be nothing we could do.
And why do you think the producing world would continue to sell us their stuff if our currency became worthless? Debt is only a feasible 'currency' if it will be paid back...the minute it isn't, it loses its value and becomes nothing but a liability. Who would want it?
If YOU had something of value, would YOU willingly hand it over in return for worthless paper? Well, neither will anyone else. They're not stupid.
There are a LOT of potential scenarios where we don't end up prevailing. This ain't your grandfather's America anymore...
Gold, like all commodities, will decline in price (but not value) for a few more years. The current price decline will carry the yellow metal under $1000 dollars over the next few months. While gold is money in very real terms, the rise of the dollar's popularity during the coming deflationary depression will suppress its desirability in the short-to-mid-term.
http://www.globaldeflationnews.com/gold-elliott-wave-update-for-october-...
Last weeks EWT analysis of the DJIA:
http://www.globaldeflationnews.com/dow-jones-industrial-averageelliott-w...
And the best thing you could do with those desireable dollars is to buy PM's at the current suppressed prices. USE this deflationary period, don't just live through it. Deflation is a relatively rare phenomenon...inflation is more common, and most people with any experience at either have it with inflation. Few have actually seen a bad deflationary episode...maybe in other countries, certainly not here.
From what I understand, it is very difficult to pull out of a deflationary spiral. Inflation is easier to address through policy, but deflation tends to take on momentum of its own, and is resistant to policy.
Of course, the actions taken guarantee you soon go from deflation to hyper-inflation, in which case all those PM's will at least allow you to preserve some of your purchasing power.
You have a brief window to get this wrapped-up, folks. Don't blow it, cause this time there won't be any cavalry riding to the rescue. You're on your own.
Deflationary talk...Don't see it, show me state
Last I checked it's fucking expensive to live.
I'm not dropping my prices, I continue to increase them for my services. When people can't make it anymore they quit and go on the dole, the Fed prints and sends them a check now eat.
We print to pay debt, inflation continues, that is what has destroyed our standard of living not deflation.
Keep Stackin....Gold
The refusal of prices to come down doesn't negate the overall downward pressure being exerted by the system. Prices never WANT to come down, they eventually get forced.
Some people have managed, through complex manipulations, to keep certain prices artificially high. But those prices are dependent on the markets beneath them, commodities and manufacturing, and the all-important labor market (which determines the consumer market you'll be SELLING into.) And they are going down, being pushed and held down by a convergence of forces not easily undone.
Prices will follow, make no mistake about it.
I agree-keep stackin'. PM's are the ballast in the hold of your portfolio. They keep you stabilized in heavy seas.
The problem with Elliot wave theory is that its always right even when its always wrong.
I can't believe anyone still uses that garbage.
My understanding is that individuals usually don't buy physical gold and silver (coins) to trade them, but buy them as insurance against hyperinflation. If you are not a member of the elite class, and therefore cannot buy and warehouse Ferrari's and old masters, you can still buy a USA silver dollar, a Chinese Silver Panda, a gold Indian Fanam, a 1,000 rupee Indian gold coin, or some Indian belly-dancing "coins". :-) Many other countries also mint silver and gold coins. I imagine that the day-to-day fluctuations of GLD and SLV mean little to the millions of Indian and Chinese individuals who buy gold and silver coins.
Those Indians and Chinese live a lot closer to their history, and know full well that regimes come and go, but gold always remains loyal and dependable.
We, on the other hand, are Americans. We are new, and we like new things. Especially OUR new things. And we believe that those things are FAR better than any of that 'old stuff'. Gold is indeed an "archaic relic" for those so very impressed by fractional reserve banking and fiat currency...
But such things are NOT new...people have been trying to 'game' PM's ever since they became money, trying to find a way around the restrictions a sound money currency imposes.
And ALL such efforts have failed. Every last one of them. Ours is but the latest in a long, long line of failures, and it will soon join all the others in the dustbin of history.
Whenever this guy posts something, it is time to go long for a trade. It amuses me to no end when he demands it is real market forces at work. Well Weiner, prepare to get stomped yet again for your paper trading troubles.
All the gold production in the world would be swallowed up by India, Russia, China, SE Asia and me before it got to $500
Let me put it this way fellow plebes... I will gladly sell you pieces of paper that say "GLD" on them....
Now, the miners are going to be really pissed off if they believe that's what the market price is, but they'll keep on working until they go broke.
Then the Federal Reserve will step in, buy them out, and pay workers a fair wage to start production and resume delivery of the metal to market at $500/oz even if they're losing money on paper...
Because the Federal Reserve can afford to subsidize any fucking thing it wants, whenever the fuck it wants...
Because the Federal Reserve is just an extension of the Military Industrial Complex...
And they can do whatever the fuck they want...
GM got a bailout. Miners could get a bailout. Miners are getting a bailout with lower fuel prices.
Ever think they want the Miners to go belly up so the Bankers can come in and buy them up?
The mines will end up being Nationalized in this Country and the people who hold PM's will be taxed out their ASS. I may be crossing the border soon carrying everything I own. Which border is the ?
"the people who hold PM's will be taxed out their ASS" -- LOL!!! What PMs? Taxes that cannot be collected are irrelevant.
Want to know the price of gold....ring up the BIS, Fed, London...etc and ask them....they will give you a reasonable estimate I am sure.
But now I think they have pumped it too low and all the animals will come in and eat it all the available physical up. Also putting more mines in moth balls.....
Gold will go up.....because I want to buy some more
and when you'll be finished buying,
it should go down again.... Murphy's Law
Options expiration games as per usual, BIS dumping tens of tons of gold in minutes.....yet China buying 60 something tons the other week.....1,200 tons this year....Russia 1,000 tons this year and so on.....
this is 100% manipulation.....you don't sell tons of gold in thin markets to get good prices, only to push the price as low as possible. Like they dumped the price $30 in thin markets, then another $10 later on, in thin markets....if they were selling my gold like that I would put a hit on them.
"To see the fundamentals, read on…"
LOL. Weiner really doesn't get it does he?
So you are saying the Physical holders are throwing in the towel? Well good, the price will correct 10-20% than hit rock bottom below which production will cease and we're back to square zhero :)
Azannoth,
"below which production will cease" the problem with silver is that production will continue as it is a by product of other mining activities. Silver keeps coming out of the refining process whether they want it or not.
On the other hand, every solar cell is covered with silver. I mean a LOT. At some point, silver will be in short supply. Probably not during my life time.
Sucks
http://www.maxkeiser.com/2011/04/silver-will-be-the-first-element-in-the...
What a load of rubbish. No more silver mined in 5 years time???
Bullshit
What FOOL still believes in technicals and charts when EVERYTHING is manipulated?
The blow up of the derivatives is what will blow up all these Bull Shit markets !
Just let the PONZI END !
Get Real People, NOTHING is what it seems, Lord let me be one of the First.
I want to see blood...
And lots of it..
shitty bloody pants, if ebola has its way...
In other terms, gold and silver is coming in off the sidelines.
The people who bought gold and silver a couple of years ago at the high are now selling at a loss to meet payment obligations.
Public sales of silver have slowed down considerably as opposed to what it was a month ago. There still remains massive supplies in private hands (North America) but it will not see the market until silver is at least twenty dollars higher than it is currently.
The speculators who bought GLD and SLV on margin are now selling at a loss? And the Austrian Economists are thanking them and buying more physical coins?
That's what happens when you can't leave well enough alone, should'nt have bought in the first place, even bondy trumped those people, and i can beat him at the casino in just a few hours.
Buying bars for a change.
Behind bars for a change.
Staying out of bars.
Listen to Andrew Maguire's most recent on kwn, much better commentary that the above on the pm market.
The author doesn't have even the slightest clue what the hell he's talking about...
Well they have been right, and how exactly do you know better. I say take it all in. Not that it matters for how much I am buying. I have a PM buying strategy that has me buying a fair amount right not, it is not flexible and will have me buying a lot more if it goes to 12. I hope it does, obviously I would like it to reverse at some point : )