The Last Contango Basis Report
It would take $10 less to buy an ounce of gold at the end of the week, compared to the beginning. The dollar is still range-bound. Graphs of the currencies priced in gold are here.
Here is an updated chart of the gold and silver “prices”, measured in dollars.
Gold and Silver Price
This report is named for the idea that the positive gold basis is disappearing. The word for a positive basis is “contango”. Gold is in contango now (aside from temporary backwardation, also discussed in this video). Once it is gone, once backwardation in gold becomes permanent, then gold no longer bids on the dollar and the dollar game is over. This may be occurring in Cyprus now (see the article here). We also aim to shed some light onto market dynamics. A rising basis tends to go with a falling cobasis and this is not a bullish sign for the dollar price. A falling basis along with a rising cobasis is a bullish sign.
The contract “roll” from April to June is nearly complete. As you look at the basis for June, bear in mind that it has fallen (and cobasis has risen) against the tide of buying as people had to sell April and roll to June. Buying should push up the offer, causing the cobasis (Spot(bid) – Future(ask) to fall). Somehow, the cobasis is rising anyway. The basis has fallen to nearly zero. Still, the picture does not look like what we would expect if All Hell Were Breaking Loose in the world’s credit markets.
Gold Basis and Cobasis
In silver, the price is falling, perhaps “breaking down” as chartists would say. At the same time, somebody is buying physical silver (or refusing to sell it). The cobasis is now up to 0.6%.
Silver Basis and Cobasis
Silver’s scarcity has been increasing. In dollar terms, silver could be close to the bottom unless industrial demand falls further and/or deteriorating credit conditions forces a larger liquidation. We are not necessarily bullish on silver.
We first made public our call that silver would get cheaper in gold terms on Jan 23 (in this video). At that time, 52.3 ounces of silver could buy an ounce of gold. Now it takes 56.4 ounces of silver. Silver has fallen about 7% measured objectively (i.e. in gold).