Monetary Metals Supply and Demand Report: March 8, 2013

The Last Contango Basis Report The dollar went down 0.16%. After close last Friday (March 1), it took 19.74mg of gold to buy a dollar. Today, it takes 19.71. By the way, we publish weekly graphs of the prices of the major currencies. It’s a paradigm shift to begin thinking of the price of the [...]

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5 replies
  1. allenching says:

    The number of long (be they naked or not) must be equal to the number of short (be they naked or not) in a particular contract. By fairly assuming the proportion of long which needs to roll is equal to that of short, a statement implying there is more naked long (..are much) than naken short (…Not so much) by observing basis near roll-over prime moment is, to me, difficult to be justified.

  2. JR says:

    “Certainly, silver is scarcer in the market today, than it was when we produced that video on January 23. And the price today is about 10% lower too.”

    That throws a spanner into the quantity theory.

    “Selling by naked longs will increasingly press down the bid”

    Naked longs are not going to undercut the bid, so doesn’t it really depend on the bid? That is, the price will only fall if the bid doesn’t at least remain constant. If there were ‘naked shorts’, wouldn’t the bid for futures rise with the need to ‘close out’?

  3. Keith Weiner says:

    allen: if the shorts are arbitrageurs, they have no urgency to buy the expiring month. They can just deliver the metal. If the longs are naked, they *must* sell the expiring month. And this is what the data shows.

    JR: naked longs won’t undercut the bid, they will accept it. The next bid in the stack is typically lower. If there were naked shorts, the *ask* would rise. With the expiring contract, the market makers are departing and so the bid-ask spread can widen significantly.

    • JR says:

      “The next bid in the stack is typically lower”

      That’s assuming the bid does not stay constant, that the ‘stack’ does not shrink. What I’m trying to say here is that it is the BID that has to fall for the price to fall.

      Whatever is the BID determines the price, not the ask, as indeed the “naked longs won’t undercut the bid”. The naked shorts might cause the ask to rise but that’s because they ‘add to the stack’, the bid rises & no long is going to undercut it.

      It is not just a minor detail either. It goes to the root of the matter. Supply does not directly influence the price. In the case of money, supply is irrelevant since money has constant marginal utility.

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