Silver Is in a Different World, Report 21 August, 2016

Monetary Metals's picture

Measured in gold, the price of the dollar hardly budged this week. It fell less than one tenth of a milligram, from 23.29 to 23.20mg. However, in silver terms, it’s a different story. The dollar became more valuable, rising from 1.58 to 1.61 grams.

Most people would say that gold went up $6 and silver went down 43 cents. We wonder, if they were on a sinking boat, tossing about in stormy seas, if they would say “that lighthouse went up 5 meters.”

To our point last week, what would be the utility of a lighthouse that you measured from your boat which is going down and up, but mostly down? Would you wonder if lighthouses had another purpose, any other use? If you could make money betting against other sailors, on the lighthouse’s next position, would you care?

"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." – Warren Buffet

Of course, what Buffet doesn’t mention is that we’re forced to use paper certificates of government debt as if it were money. This debt is losing value as the government racks up ever more implausible amounts of it ($19.5T at the moment). Meanwhile, lenders are offered lower and lower interest rates to finance this growing monument to economic insanity.

Surely anyone from Mars would be scratching his head at this, too.

Unfortunately, Nixon’s gold default almost exactly 45 years ago to the day removed the extinguisher of debt. When you pay off a debt usinggold, the debt goes out of existence. When you pay a debt using dollar, the debt is merely shifted. So the debt grows—must necessarily grow—at an exponential rate.

Also unfortunately, Nixon’s gold default also unhinged the rate of interest. It began to shoot the moon. It eventually peaked at an insane high (and historically unprecedented) level in 1981. Since then, it has been falling and now it keeps hitting insane low (and unprecedented) levels.

You can get yourself out of the loop by buying gold, but you cannot effect the debt, interest rate, or banking system. You are disenfranchised. Instead, we have monetary policy administered the way the Soviet Union had food prices set by bureaucratic diktat.

The problem is not that gold cannot have any utility. It had it, once. The problem is that the government has locked up gold’s utility. What’s left gold is just betting on the price action in the casino.

Sooner or later, that price action is going to come to an ignominious end. Contra the Quantity Theory of Money, the value of the dollar will go to zero. This will not be because its quantity rises to infinity. It will be because gold owners no longer wish to risk holding dollars, for fear of counterparty default.

About the best we can say is that today is not that day.

Read on for the only the only true picture of the supply and demand fundamentals that ultimately drive the price action. But first, here’s the graph of the metals’ prices.

       The Prices of Gold and Silver

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It rose significantly this week. 

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

Well, well, well. Look at that. The abundance of gold (i.e. the basis, the blue line) falling all week, and the scarcity rising. Indeed, we see now this pattern has been going since the end of June. The same pattern holds true for farther-out contracts.

This means that someone, or millions of someones—do not get too caught up in the fallacy of famous market players—is buying physical gold metal. In that time, speculators have not been eager to buy more. So the net result is that the fundamentals have nearly caught up to the price.

The Gold Price and Fundamental
gold price and fundamental

The gold market may not be screaming “buy” yet—today is not that day—but it’s no longer screaming “danger”.

It is interesting to see that the speculators—who are really betting against the dollar, even if they don’t always know it—sometimes go their own way. Perhaps they see a central banker in the news, or the jobs report disappoints. Buy, buy!

No animal species can survive by cannibalism—by members eating other members. And speculators cannot drive the market by continually buying from one another, giving them both profits (as they reckon it, in dollars) and ever-rising price. Eventually either the fundamentals change and the speculators are proven right. Or the speculators give up, or get flushed out. This time, the speculators are proven right. They put their dollars in harm’s way, particularly since the end of April when the softening fundamentals fell below the market price. They continued to fall all the way through late June. But the market price did not follow this trajectory.

The Silver Basis and Cobasis and the Dollar Price

Silver is in a different world.

We do see a falling basis and rising cobasis this week. However, it’s just tracking price. That is rising dollar price (i.e. falling silver price) corresponds with rising cobasis. As speculators reduce their positions, the price falls a bit.

It has a long way farther to fall, before it catches down to the fundamentals.


© 2016 Monetary Metals

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GRDguy's picture

Silver is manipulated to keep costs down so those companies (like Apple) who's stock values are obscene can stay obscene.  It's not that all those high tech companies would really suffer, but their multiples would not be sustainable. Banksters rob the miners so corporate manipulators can afford to party at the Hamptons. Just another example of lyin' and stealin'.

worbsid's picture

Right now I can get 500 beautiful shiny new Eagles for about 100 multi colored kinda green bills that look the same as dollar bills but have 100 on them in stead of ONE. What a deal! Paper for real silver. For my own brother, I could not make a better deal.

illuminatus's picture

When Silver was de-monetized and taken out of circulation world-wide massive amounts of silver went into storage at the various treasuries. I forget the amounts quoted, but the idle supply was enourmous. Now, that supply has been whittled down to next to nothing and TPTB had to start playing all kinds of paper games (exchange traded funds etc.)to keep the price supressed. No doubt Central banks will continue to push their paper for as long as we the people accept their shenanigans. 

 In my experience, most people have no idea about how the fiat that they go to work for every day is created, or its real worth, and buying PM's is the furthest thing from their minds.

TradingTroll's picture

A definition of Fundamentals in the above chart would be nice.

Its really quaint, someone trotting out fundamentals. Not sure if I should laugh or cry.


Then there is the gold:silver ratio. Name one period in time longer than 5 years where the gold:silver ratio actually represented the physical amount of metals available. Well, you cant because it has never tracked this ratio. Its an imaginary reference point which is no different from pricing gold in fiat.


"It has a long way farther to fall, before it catches down to the fundamentals."

I trade price and have been quite profitably short AG, SLV for awhile. Fundamentals and the silver-gold ratio are just noise.

RaceToTheBottom's picture

"Anyone watching from Mars would be scratching their head." – Warren Buffet"


No doubt the senile crony Warren and his martians friends would be more impressed with taking digital digits that represent people bringing paper with numbers on othem into a local bank and the bank loaning out those same digital digits over ten or twenty times over out to other people.

Conax's picture

When the 'market makers' use their algos, license to steal and jew confetti to trash a commodity's future price during off hours in such a blatant and dramatic way there is no point in technical chart analysis or this greasy article.  It's cover for the opex smash that is regular as rain.

Fuck off, MM.

May a thousand blisters appear on Dimon's dick.

Perimetr's picture

I have to wonder exactly how many trillions or quadrillions of electronic fiat dollars have to be created before all the collapse we have been hearing about actually happens?

In other words, we hear that the "collapse is here", but is it, really? The only thing I see collapsing *again* are silver prices, and this comes after every silver cheerleader has spent the last 6 months telling us to buy, buy, buy . . .

tarsubil's picture

That's a good question. The Federal debt doubles about every 8 years so in 8 eight years it will be about $40 trillion. In 16, it will be $80 trillion.

I'm guessing around 20 more years of this shit before the dollar finally dies.

Of course, there will be stock crashes and housing crashes and banking crisises in the meantime. But the vast majority of the people want to continue with this system and don't want to change. If they did, gold would be at 10K and silver at 1K and the system would change.

Miggy's picture

The question is can sovereign debt ever be repaid. If not how is this going to play out? Most likely by currency debasement. You can't have the discussion without including debt because that is what scares many of us into buying the stuff.


I am talking 10 years, not 6 months.


USGrant's picture

Fundamental? The derivatives market is HFT driven bullshit. There is nothing fundamental about any market.

bobsmith5's picture

It does no good for articles to be written about the PM bull when we are in a  period of very great seasonal weakness known as the summer doldrums.  The criminals that control, repress, manipulate, and suppress the price take full advantage of that.  Also, coming up is the Jackson Hole Symposium with a Yellen Speech on Friday.  This is a favorite time for the price to be attacked in earnest. 

Unless you preface your article with these short term factors, all you are going to get is a yawn and a cynical response.  In an era of extreme massive price manipulation in all markets, but especially the PM's, using charts and graphs only makes you look completely out of touch with the realities of today's markets. 

I see no chance of any resumption of this PM bull market until the summer is over and people get back to work and start looking seriously at the markets again.

Bear's picture

The 'Real Market' is that of the Manipulator and he keeps working 24/7/365 ... no rest for the wicked


I would never sell my silver for bits of unbacked paper. I intend to barter with it for big items and small items. 

ilovetexas's picture

I still remembered his assertion in Feb (roughly) that silver price is capped at 14.97! Wow, silver went to 21. I don't think the author has any credibility left to talk about gold and silver.

Miggy's picture

My take is they are  doing their very best to keep the price of gold and silver as low as they can right now. I just don't see silver ever getting below what it is right now, within a nominal range. The system is going to blow up and more easing will be needed and we know what that means.

Skiprrrdog's picture

"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." – Warren Buffet

That is certainly one viewpoint, but if you buy into that, what in turn does that say about little bits of green paper that have a fluctuating 'value' (or any value at all, for that matter) that is dictated by a bunch of ollie-garks from on high? Dollars only have any value at all because TPTB have the populace brainwashed into believing it is so. A dollar is worth a dollar, until it is not. Gold will always be worth something, no matter what a bunch of crazed and deluded old guys/gals think. Warren Buffoon, no one gives a fuck about what you are a dinosaur stumbling around looking for a tar pit to fall into. STFU and go stick your head in Hyena Rodent Cuntons ass...

Nunyadambizness's picture

I once had great respect for the man, who worked exceedingly hard often until midnight or later doing analyses for investments, and made a fortune.  That man then turned into the Socialist/Communist fool that speaks today--he got his, and wants to make sure we don't get ours.  To hell with him and his Socialist/Communist friends--all of 'em.

illuminatus's picture

So does the author stipulate the price of silver will rise in Dollar terms?

HopefulCynic's picture

I guess so, but his First Graoh is BS, he does not take in to account the huge gap in Gold and Silver prices which were manipulated some years ago. Until recently Gold and Silver have begun to move again in parallel. 

Slver is not ready to go up, not yet at least, it will have to get a bigger correction to 14-16 before anything else happens. 

bobsmith5's picture

"it will have to get a bigger correction to 14-16 before anything else happens."

You have absolutely no basis to make such a claim, no evidence of any kind, no analysis, no fundamentals, no facts whatsoever.  You sound as bad as all these gurus who claim it's going to the moon tomorrow or next week.  PM's are an extremely manipulated market that plays against seasonal weakness and the Brexit crisis pricing which was immediately pummeled with massive paper shorts into the futures market.  In ten days the seasonal summer doldrums will be over and that's not enough time to take it that low.  As soon as the September jobs report is released the PM's will reassert their bull market upward climb in earnest.

jeff montanye's picture

may not be any more than 18 or high 17.  surprises in a bull market are on the upside, made his most money sitting tight, etc.

Transformer's picture

"Slver is not ready to go up, not yet at least, it will have to get a bigger correction to 14-16 before anything else happens. "

Silver will go up or down when the Bullion Banks want it to go up or down, or until they lose control, then likely up.