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Gold, Silver, and Horse Betting Report 13 Sep, 2015
Consider the sport of betting on the sport of horse racing. It’s actually similar to the analysis of the gold and silver markets. How’s that?
First, there is the manic-depressive crowd. Sometimes (as we are told—we don’t hang out at race tracks) the bettors sometimes get overly excited about a horse with slim chances to win, or get totally unexcited about a strong horse. The track responds by lowering or raising the payout for winning, respectively. The more betting on a horse, the lower the payout.
The track does not care which horse is likely to win or not win. What it wants to do is take its rake from the total bets placed. It does this by making a spread between what it takes in on all the horses, and what it will have to pay out if any given horse wins. We don’t know the precise formula, but if horse X gets ¼ of the total bets then the payout if X wins had better be less than 4:1.
In keeping with our theme of emphasizing spread rather than price, there is a spread that smart bettors should be paying attention to. A smart horse bettor should have a way of assessing the probability of X winning (and for every other horse in the race). He should bet when the payout is higher than the probability of winning. Suppose in the frenzy of betting on X, almost no one bets on Y. So Y pays 10:1. If a bettor assesses Y’s odds as 5:1, it’s a good bet. Yes, the horse is not probable to win. However, the payout is greater than the odds. Given enough bets with 5:1 odds and 10;1 payouts, a bettor will win in the long run.
We admit to not knowing much about betting at racetracks. There may be lots of reasons why this scheme is not practical (not least of which is being accurate in assessing odds for each horse). That’s not the point, and we certainly don’t recommend anyone to start betting on horse racing.
The point is that the “house” focuses on spread. Sophisticated operators focus on spread. You should focus on spread too.
Mainstream analysis often dismiss gold as having no value, on grounds that they know not how to assess it. Gold bugs often like to divide some measure of the quantity of dollars by some measure of the quantity of gold to get an intrinsic value. This exercise in arithmetic usually shows that gold is massively underpriced.
Both approaches are equally wrong.
The fact is that virtually all of the gold mined over the millennia is still in human hands. The proportion for silver is lower, but still orders and orders of magnitude greater than that of any other commodity. This means that the people on this planet do value gold and silver, without much regard to quantity already held. The value they place on the metals can be measured at the margin. How?
By studying spreads.
We can theorize that people will value gold and silver more highly (i.e. value the dollar at a much lower level). But that is not a measurement of the current market reality. It is speculation. Perhaps smart speculation. It may even be based on sound economics. But it’s nothing to do with the current market and supply and demand conditions within it.
…
Monday was a holiday in the US (Labor Day), so it was a short week.
The prices of the metals went down, with the gold move slightly larger than the silver. Yes, but what happened to the spreads of the metals this week? 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 (stocks to flows) 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. The ratio moved down again this week. Is it bouncing off support, or just correcting before it goes higher? Read on…
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 brief 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
The price of the dollar rose slightly, but the scarcity (i.e. cobasis) of gold backed off slightly. At least for the October contract.
The fundamental price did not move much. It’s still over $1,270.
Now let’s look at silver.
The Silver Basis and Cobasis and the Dollar Price
While the price of the dollar went up (i.e. the price of silver, measured in dollars went down) the scarcity rose.
The silver fundamental price rose, and is now about a dollar over the market price.
The fundamental ratio moved down slightly, but is still over 80.
Monetary Metals may sponsor an event in London in early October, and another in Sydney in late October, to discuss economics and markets, with a focus on how to approach saving, investing, and speculating. Please let us know if you may be interested in attending either one here.
© 2015 Monetary Metals
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Keith Wiener obviously has no idea about betting on horses, or how odds are set.
It's "pari-mutuel" wagering.... literally "among ourselves". There are bettors, and there are odds. The odds depend entirely on how people are betting, not any "spread" supposedly determined by the track, but by the betting pool.
Much like wagering on horses, knowledge is most important in investing in metals... also as important as horse racing, if you believe that the race is fixed, DON'T BET.
http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?offset=40&fiid...
Kieth, go back to school. you're not ready for prime time.
Not a very useful observation.......Spreads - Meh - fuck spreads.
I fucking buy when I buy, and I sell when I sell. But, for fundamental reasons. For example, If central banks were to suddenly exercise stewardship over their currency, stop interfering with price discovery (interest rates), and if governments were to stop taking on debt, reducing size and scope of government to pay down debt - well then I'd probaably be a seller of PMs. Since none of the above shit is happening, I am a buyer.
And I don't really care wtf price is for any of them, or, what the spread is. I'm fucking buying - plain and simple. Every Saturday - sometimes Sunday too. Just fucking buying.
Buying and buying and buying.
If price goes lower as I suspect it probably will, I'll be.....guess what
Buying and buying and buying some more.
Because its not really buying - its more like swapping mediums of exchange.
Bottom line - until interest rates return to some value that reflects that the opportunity cost of holding money is NOT zero as it is right now, I will be.....
buying and buying - and then if I feel like it - buying some more.
Its really that simple.
what, no mention of a crooked,"paid off jockey" holding the horse back, drugged horses, or owners cabal.
a horse named Gold, is being bet by the insiders, his owner, and the public does not want to bet the horse to nearly that degree, hence the odds are low (or price is high in market terms) relative to betting demand. (a standard formula for this is: 20% of the bettors bet 80% of the money). we know from our work that those holding physical gold write futures and other speculation on the price of gold, to lower the price in dollars in order to buy more. the correlation between scarcity and lower dollar value confirms this, to add something to it, we see that the horse Gold is coupled in the entry with a horse Silver, but the insiders are not interested in Silver, their money is on Gold.
it may be that the public is betting on Silver which makes more sense from the small investors needs. Silver coins are fungible and have very little markup. the government never confiscated Silver, and the last time a FRN was backed by anything it was a Silver certificate.
we also know China added to its gold reserves despite spending 200B to prop up the stock market, they also sold 1T in reserve currency US treasury bonds. now China sold bonds and bought gold. Bonds is another horse, which bettors make show bets to collect the tracks minimum payout of 5%, though not even that in real terms. this appears to be a risk on move by China, turning in their show ticket on Bonds for a win ticket on Gold. If Gold does not win he usually runs out of the money.having learned from their masters at the Fed when the going gets tough its risk on. works every time
I reckon those bond bettors may soon be looking for a bridge to jump from.
I am new to this site, looking for good dialog on investing issues. I rode the QE elevator up, sold out of everything after earning a HUGE once-in-a-century net profit, now sitting on all cash because I feel the financial markets are toppy and wobbly, at a major transition point, thinking about when and what to invest in next.
Gold is falling in price, even while global conditions are clearly worsening. I never bought any gold because of the very high transaction costs, very high holding costs, very high selling latency, lack of income, etc.
I was expecting gold to rally strongly based upon widely declining conditions globally, and am very surprised to see gold falling. Any good explanations from you gold affecionados for this contrary-to-expectations unpleasant reality ?
Reason: More selling than buying. Like in all commodities since 2011. Maybe a bit of research on historical commodity return cycles could help you. Btw, bottom shouldnt be far from here according to past 200 years lessons. But, again, maybe this time will be different...
Yes, of course, more sellers than buyers, but
WHY are there more sellers than buyers
as the human world is sucked deeper into the swirling toilet of broad issue decline ???????
Ok... Have a look at Weimar Hyperinflation in Wikipedia. You will see that, even before such a disaster gold did have a decline of around 50%. A then skyrocketed. Even then. Prices go up and down... and correlation with logical reasons is not usually so easily seen. Even if the logic is correct, as Kostolany used to say...2+2 is never 4, always is 5... minus 1. As I said, do a bit of research on commodity cycles. You will see interesting things.
1oz Silver American Eagle €12 @ EurGold
https://www.eurgold.eu/silver/american-eagle-1oz-silver-coin-1-dollar-le...
Your anus hurting for € 1
www.bootupyourass.com
Tyler: Shut down the account of this EurGold moron. The comments area is not for unpaid advertising. Thank you.
Agreed. And it's not even real advertising. It's false and misleading.
-Argenta
Correct. He should buy a pop up or google ad- that segregation wil be less annoying in the margins.
...then. AdBlock their asses
Paper assets are like betting on the fucking horse with 3 legs and two of them are broken. The FED is a tout of all paper shit , Yellen is the horses ass.
its like trying to explain the main move with the partial second derivative only. Its a driver, not the main driver.
yaaaaaaaaaaaaaaaaaaaaaawnnnnnnn
This theory might explain "normal" moves in prices of Gold/Silver .. but explain a 5%-10% drop in days on no news or 1%-2% drop in seconds