Silver Futures Market Assistance

By: Keith Weiner | Mon, Feb 13, 2017
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This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday. Is this the rocket ship to $50? Will Trump's stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again?

This will again be a brief Report this week, as we are busy working on something new and big. And Keith is on the road, in New York and Miami.

Below, we will show the only true picture of the gold and silver supply and demand fundamentals. But first, the price and ratio charts.

The Prices of Gold and Silver

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 fell this week.

The Ratio of the Gold Price to the Silver Price

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

Gold Basis and Cobasis and the Dollar Price

Again, we see a higher price of gold (shown here in its true form, a lower price of the dollar) along with greater scarcity (i.e. cobasis, the red line).

This pattern continues. What does it mean?

First, it means the price of gold is being pushed up by buyers of physical metal. Not by buyers of futures (which would push up the basis, and reduce scarcity).

Second, if it continues too much more, it means nothing good for the banking system. There is one force that can make all the gold in the world—which mankind has been accumulating for thousands of years—disappear faster than you can say “bank bail in”. The force is fear of counterparties, fear of banks, fear of currencies, fear of central bank balance sheets... fear of government finances.

We want to emphasize that the gold basis is not signaling disaster at the moment. It is merely moving in that direction, for the first time in a long time. It has a ways to go yet.

Our calculated fundamental price is up another $40 (on top of last week's +$40). It is now about $130 over the market price.

Now let's look at silver.

The Silver Basis and Cobasis and the Dollar Price

Silver Basis and Cobasis and the Dollar Price

Note: we switched to the May contract, as March was becoming unusable in its approach to expiry.

In silver, the story is a bit less compelling. The scarcity of the metal is holding, as the price rises. However, scarcity is not increasing.

Were we to take a guess, we would say there is some good demand for physical, and the price action had futures market assistance.

While the market price moved up 44 cents, our calculated fundamental price moved up ... 46 cents.

 


 

Keith Weiner

Author: Keith Weiner

Keith Weiner
keithweiner.posterous.com/

Keith Weiner

Keith Weiner is CEO of Monetary Metals, a precious metals fund company in Scottsdale, Arizona. He is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. He is founder of DiamondWare, a software company sold to Nortel in 2008, and he currently serves as president of the Gold Standard Institute USA.

Weiner attended university at Rensselaer Polytechnic Institute, and earned his PhD at the New Austrian School of Economics. He blogs about gold and the dollar, and his articles appear on Zero Hedge, Kitco, and other leading sites. As a leading authority and advocate for rational monetary policy, he has appeared on financial television, The Peter Schiff Show and as a speaker at FreedomFest. He lives with his wife near Phoenix, Arizona.

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