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A 14 Handle on Silver. Again. 8 Nov, 2015
What’s the difference between the Supply and Demand Report 1 November and the Supply and Demand Report 8 November? Just a minor punctuation change. Last week, we asked (rhetorically) if silver would have a 14 handle again.
This week, the market answered. Why yes, yes we can!
Silver closed the week, trading at $14.78. This is down $0.76 from last Friday and almost 20 cents under our fundamental price from that date. The price of gold also dropped, $52. This is quite a discount to what we calculate as its fundamental price.
So what happened? It’s always a challenge to explain a market price move in terms of a concurrent or preceding event, and financial reporters get it wrong all the time. In this case we feel pretty confident that the driver was the nonfarm payroll report, as the price of gold plunged about $15 within a minute of the release of the data on Friday.
Why? What has the payroll data got to do with the price of tea in China or the price of gold in New York? Traders (likely not hoarders, but speculators) are trying to figure out if the Fed will: (A) cut interest rates, (B) hold them steady, or (C) hike them. If they are to hike, then everyone wants to know when. Since the Fed has said it wants to see full employment as one measure of a recovery before risking a rate increase, the market looks to the Bureau of Labor Statistics for hints.
Such is life in a centrally planned world, where the most important price of all—the price of money—is administered.
There’s only one flaw in this approach. The price of gold does not correlate to the money supply or to the interest rate. In the 1970’s, we had a rapidly rising price of gold and skyrocketing interest rates. In January of 1970, one could have bought gold (if one was not an American—in America, it was illegal) gold for $36.56. By December 1979, the price was up to $593.84 which is a 16-fold increase. More than half of this gain occurred from 1977-1979, which saw the price rise from about $132 to $594.
During that same period 1977-1979, the interest rate on the 1-year Treasury went from under 5% to almost 12%, well over a double.
As to more recent years, let’s look at a graph of 2001 through present, overlaying the gold price with the interest rate.
The Price of Gold and Fed Funds Rate
Here’s a trick question. If we told you the next interest rate trend, how would you bet on the price of gold?
You can’t.
We can tell you that our theory calls for a continuation of the 34-year trend: interest rates are falling worldwide. Although we can’t predict what the Fed will say at their next meeting, we don’t expect any major hikes, because the Fed cannot do it. We would have thought a 25bps increase was possible, but it seems even that meager rise would cause too much difficulty.
As to predicting the price of gold, we have a different methodology. Read on for our picture of supply and demand fundamentals…
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 barely moved this week, upwards.
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
We’re still in the same mode. As the price of the dollar rises (i.e. people sell gold, i.e. the price of gold as measured in dollars falls) the scarcity of gold rises (i.e. the cobasis). The red and green lines continue together. Unlike the Fed Funds Rate and the price of gold, there is no an uncanny correlation between the cobasis and the dollar price.
This means that sometimes, speculators are selling futures (typically purchased with leverage) and sometimes they are buying. They have no effect on the price at which supply and demand would clear.
Which, as the price of gold dropped by $52, we calculate moved by only $2. Up. Does this mean gold will trade at almost $200 higher by tomorrow morning? Probably not. So what does it mean? It means gold is on sale, offered at a discount thanks to speculators that are going to lose a large number of dollars one of these days.
Now let’s look at silver.
The Silver Basis and Cobasis and the Dollar Price
The silver price did fall relatively quickly, less than a month since we noted the market price was above the fundamental.
This week, the market price fell hard. The graph shows that the scarcity of silver rose even hard (though bear in mind that silver has much more of a cobasis distortion field than gold, as the near contract tends to tip into temporary backwardation before gold does, and deeper).
The fundamental silver price fell about a dime this week, thus putting the market price under the fundamental. While that’s a better place to be, if one is a silver bettor, we wouldn’t bet either way on silver right now. The action is going to depend on whether momentum continues to carry the price lower, or whether there’s a sharp rebound as speculators jump to the other side. Maybe those with razor-sharp technical models can make a buck here. That’s not for us.
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I'm not even going to type in all the ridiculous numbers of contracts that were flying in a blizzard of hysterical attacks against gold and silver all last week.
Friday was a blatant, obvious, no fig leaf paper shellacking, yet these assholes apparently didn't notice. Keith (the MM Dildo) Weiner needs to go to the park, suck dicks and try to regain his self respect.
The paper gold and silver prices are the price of a hedge. And as the COMEX loses supply, it is clear the paper price is not the correct physical price. Soon physical will be unavailable at the paper price to hedge. Paper gold and silver hedges, via shorting, are being purchased at high cost. It is just another governmnet intervention sponsored bubble in buying PM hedges, also known as shorting paper PM.
And last week was one very determined price intervention. There are things I look at on the charts to tell me when the financial rapists are active. One is nonsensical heavy handed capping and flat lining, to maintain paper position profits. A more important one of them is high derivatives volume. And it was very high. Never buy paper gold when the volume is nuts, as seen on netdania charts. All it indicates is intervention. Despite the ususal hubub about volume, it is bad in the gold market because it indicates paper intervention. That is learned from experience.
Sell All Rallies
Metals are going no where.
Dead money for at least another decade.
Dork alert.
Like you can really forecast a decade.
With all this negativity to G/S its probably the bottom FOR A DECADE..LOL
What they are doing is keeping the price artificially low so industries like solar can produce products cheaper, then in a decade it will run out. Why not let the market determine price and where the silver should go and say FUCK THE FED? How do they justify keeping prices artificially low and letting it just go where ever.... when its finite? How do they know this is the right thing to do? Have they become gods? Shouldn’t the market be determining this? Its gross. The Fed should make its strategies known to the public. They are fucking nuts. What if we figure out silver has more properties that we never knew about, but oh shit its too late because its all fucking gone? We dont need a FED that thinks its God.
https://outofthebrambles.wordpress.com/2015/04/21/meet-the-world-money-p...
That is a very interesting theory about the solar cells. It doesn't matter if silver is down 75% for years, if it goes up 600% in a month.
Exactly, there will always be big demand for silver no matter what, just go to the silver institute to find out. It has so many uses? To be clear the reason why "FLACO" says it will go up in a decade or so is because he knows it will run out in my opinion. They will try to keep it flat till then is the strategy. Why dont they just fucking say it? or should I say thats why they cant say it, because its a stupid, illegal strategy. PERIOD! The market needs to be determining this shit not the FED. Its not like these are industries that cant afford to pay? WTF? The collalateral damage they are causing that we dont see is what is the most destructive.
In a natural economy price would help silver last longer, which may not interest the greedy, but its the "right" and "fair" way to deal with our precious resources. Silver is a "healer" that we havent studied enough yet? WTF?
Im very suspicious of users like FLACO, they are part of the psycological / propoganda war that is going on, he is trying to inform us indirectly in my opinion. They are easy to spot because their ideas are unique to everyone elses, but they are inline with the FED in my opinion.
Flaco in one name or another and many others, the same game, different name. Been here ever since I have been reading this site. Likewise the people who many years ago, like myself, knew both metals were being manipulated and likely by whom. GATA is not a new organization. Information has been available for many many years but most commentators pooh-poohed the GATA info.
Who knows Falco may turn out to be correct? It is beyond anyone, outside of a very small loop to time these manipulated markets let alone have insider info on the final aim of this whole farce.
They want to use tomorrows silver today and I dont think that is a very smart idea, I think its very short term thinking which would be par for the course of everything these days. We could really need it at some point? Im 100% sure its worth more than 15 bucks an oz. At the very least its irresponsible handling of a precious resource.
I dont think its just limited to solar either, its technology and military too at least. If computers take an oz of silver, imagine what a full sized robot takes.
How do you come to that conclusion because everything is so peaceful around the world? You always say this... what is your reasoning? Are you part of the "team"? I highly doubt it would be down for 10 years unless another DEM gets in? You can see 10 years out? Its doesnt look very good to me. Even during the depression gold was up? Why dont you fucking people just tell everyone the fucking truth?
Our economy is controled by our government full of crooks. I think "real" money will have value soon enough, look at all the B.S.?
More B.S. FED Propaganda. Its all about "Paper" Gold from the heavens! There is just so fucking much of it. Demand has been through the roof the past two months also? China cant seem to get enough?
This whole system is imploding. http://www.zerohedge.com/news/2015-11-04/there-are-now-293-ounces-paper-gold-every-ounce-physical-comex-registered-gold-hits-
http://www.reuters.com/article/2015/10/27/us-gold-gfms-report-idUSKCN0SL13620151027
This is a fair system? We need a regime change immediately. Our leaders are SCUM. Silver is estimated to have an 80 million oz defecit this year, meaning they are taking out of reserves for the last 10 out of 11 years.
https://www.silverinstitute.org/site/supply-demand/
If any products in the US had this type of demand their stocks would be through the roof.
I am 99% convinced JPM dumped the contents of SLV into the market in 2011. The inventory of SLV flatlined and stopped making sense at that point. If it was full of IOUs, it would make sense for it to flatline due to having to keep accounting those IOUs as real silver and being unable to actually shed any. Then the COMEX inventory surged. But now it is falling again. I do not really need an admission of guilt or a conviction. I think I know what banks do, and I see what I would expect to see in this situation.
Here are 2 COMEX silver inventory charts. The first is registered. The second is total. The SLV theft has run its banker course.
http://www.24hgold.com/english/interactive_chart.aspx?title=COMEX%20WARE...
http://www.24hgold.com/english/interactive_chart.aspx?title=COMEX%20WARE...
We are supposed to be a Nation of Laws? We are getting raped. Im not in any "paper metals". These are precious resources that are going to get "sucked" up for nothing. You want to talk distortion? Unreal. There is no way this will all work out they way they think, thats the only thing Ill guarantee.
Hey, pipe down ntil you're 100%. Too much margin for error with you only being 99%.
When you get to 100, we can talk.
Buy and HOLD.
If you don't sell, you don't lose.
If they can make solar cells cheaply without it or if they can make it using fusion we may be fucked.
Otherwise......HOLD.
It is fucking pretty regardless and at this price?
stack that shit...
"Supply and Demand" What kind of Fucktardery is this?
Are you saying there is a finite supply of naked (paper) shorts?
Take this shit on over to See BS jews
It IS "supply and demand". Currently there's an oversupply of paper...
No, but shorts do have to cover.
What a fuckwit commentary.
"What a fuckwit commentary."
Indeed! Maybe this will "help" them:
Precious Metals Markets: Welcome to ‘The Matrix’Thanks for that link. I have not read that article again since last year. Good to go back a wander the BBulls site.
Supply and demand my ass. PROVEN MANIPULATION.
http://gata.org/
And with the unrelenting beat-down in prices despite a geologically static supply, slumping mining and processing, it is becoming harder and harder to dissuade people from 'looking behind the curtain' at those manipulations...and manipulators.
Maybe that's the real reason behind those bankster suicides; they know real money is about to make a comeback, but not in a system they can control.
The AIIB is a big upraised middle finger to the Fed and the IMF, and if the Ruble and the RMB go Au, the Fed will be left with nothing but a bag of rocks like Charlie Brown on Halloween, Paper just as toxic as having a 300-to-one order-to-physical gold ratio.
All that paper makes for good kindling for a fire, but not much else. Maybe some of them actually did choose to jump rather than burn.
And strangely enough the $100 bill isn't 100 times better at kindling than the $1.
No, but when lighting a cigar with FRN the chicks are 100x more impressed when a Benjie is used.