LBMA 2017 Forecasts (for the US dollar)

Every year the London Bullion Market Association (LBMA) surveys the top precious metals analysts of bullion banks and consultancy firms for their forecasts for precious metal prices for the year ahead. We look at things a little differently, and would say that the analysts are forecasting the value of the US Dollar, priced in gold (or silver). This year the analysts are generally bearish on the Dollar, with an average forecast of 25 milligrams of gold, down 5% from the value of the dollar at the start of this year.

The aggregated forecasts assembled by the LBMA have a fair history of accuracy, as the chart below demonstrates. It shows the actual average value of the Dollar as a line against the lowest (bottom of the navy bar), highest (top of the dark cream bar) and average (where navy and dark cream bars meet) of the forecasts . Note that these charts are of the analysts’ yearly averages – see the survey for more detail on each analysts’ high and low range.


Again, this year the range of forecasts is quite tight, indicating more consensus among the analysts about the direction of the US Dollar. The most pessimistic analyst is Joni Teves of UBS (the 2016 forecast winner), who sees the US Dollar averaging 23.04 milligrams during 2017, whereas Bernard Dahdah from Natixis is the most optimistic, thinking it will average 28.02mg of gold. For reference, the dollar is currently 25.84mg gold.

The LBMA analysts are less accurate when looking at the US Dollar in silver terms but this year their range is tight so they must be confident. William Adams of Metal Bulletin Ltd has the lowest average at 1.54 grams of silver while Bernard Dahdah sees the average at a high 2.06g. The dollar is currently 1.78g silver.


If you want to look at things back-to-front, you can find the survey here, where they present the forecasts as if it is the value of gold and silver that is changing. Crazy, huh? We plan to release our own predictions soon, in our Outlook 2017.

The Trump Weak Dollar Report, 22 Jan, 2017

The action favored bettors this holiday-shortened week (Monday was Martin Luther King day in the US), with the price of gold up 13 bucks and silver up 26 cents.

We noticed a worrisome remark by newly inaugurated President Trump. The strong dollar of the past 20 years, he said, is not good for American competitiveness. Let’s just tackle this straight on. Actually, we will address three distinct issues.

First, Trump said, “our companies can’t compete with China now because our currency is too strong.” Keith is old enough to remember long before the current scare about China, the scare was about Japan. Japan was going to bury American companies, and buy up America. Or so we were told. It would be interesting to look at the yen during this time, to see if it was falling and giving Japan some of the competitive advantage that Trump theorizes should occur.

As it turns out, it’s exactly backward. From a low of 0.33 cents in 1976, the yen rose to nearly 1.3 cents by the mid 1990’s.

Of course, this makes sense to everyone but benighted economists. How could draining away the savings of the people and businesses give any advantage? That is what currency devaluation really means. A loss of everyone’s savings. Poof.

This brings us to the alleged strong dollar. On January 22, 1997—exactly 20 years ago—the dollar was worth about 89mg gold. Compare to Friday, when it was just under 26mg, a loss of 71%. Orwell would be proud at this new meaning of the word strong!

Of course, no one any more believes in any kind of objective standard. The dollar, they think, should be measured by the euro, pound, and yen. And they, in turn, are measured against the dollar. It’s a neat little trick, a sleight of hand, to distract attention from wholesale theft.

Finally, we have Trump advisor Anthony Scaramucci, who said the rising dollar will “have an impact internally in the US”. He spoke of “reaching out for lower-class families and middle-class families.”

To reaching for… that is a good visual for this. The government will reach for their savings!

Fortunately, under the current structure, the president does not have the power to push the dollar down. Heck, the Fed has been trying to do that for years, and has not been succeeding. However, this is a worrying development that bears close watching. Can anyone—including Trump—say what he might do?

Below, along with the fundamentals, we show a hint of what’s coming soon at Monetary Metals. But first, the price action.

The Prices of Gold and Silver
letter jan 22 prices

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

The Ratio of the Gold Price to the Silver Price
letter jan 22 ratio

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
letter jan 22 gold

We have switched to the April contract.

In a continuation of what seems to be the new pattern, we have a dollar that continues to slowly fall. But, unlike the previous mode, we have a rising scarcity of gold. That is, the price of gold is rising because buyers in the physical market are getting hungrier, while sellers in the physical market retreat.

However, note that the slope of the red line is not steep. And, unlike the February contract, the April future is nowhere near backwardation. The cobasis is -0.8%.

Let’s preview a chart that will be publishing on our site soon.

The term structure shows the basis and cobasis for contracts going out a year and a half. This is generally where all the interesting features would be. Note the absence of any interesting features. Just a nice gentle rise in the basis and fall in the cobasis, exactly what we would expect (other than the small backwardation in the Feb contract which is sliding off the left edge into oblivion).

Needless to say, this is not a picture of any kind of shortage, imminent banking crisis, or magic trick by the UN or International Monetary Fund.

While the market price of gold moved up a bit, our calculated fundamental price move up more. It’s now a bit over $1,300. Not crisis territory by any means, yet interesting in light of a market price at $1,210.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price
letter jan 22 silver

In silver the cobasis is also rising, also slowly.

Our calculated fundamental price moved up 50 cents from last week. It is now just about at the market price.


© 2016 Monetary Metals

Silver Smoking Gun to Stop Dishonest Dealing

Last week ZeroHedge reported on the amended London Silver Fixing Antitrust Litigation which included damaging chat logs provided by Deutsche Bank that reveal collusion between bullion bank traders to “shade”, “blade”, “muscle”, “job”, “spoof” and “snipe” the silver market.

While the amended complaint only provides selected examples from the 350,000 pages of documents and 75 audio tapes that the plaintiffs received as part of the settlement with Deutsche Bank, what has been provided shows cliques of traders who worked together against the interests of their clients.

Below is a network map of these cliques, which shows every trader mentioned in the complaint with the lines indicating who chatted with whom (view the map online here).


The key ringleader is DB Trader-Submitter A (submitter refers to their role submitting orders into the London Fix) and this sort of hub and spoke model is common in social networks. The two persons with a slash and two banks in their name indicate that they moved banks during the period of the complaint. This is not uncommon in bullion banking since it is a small industry and would increase the risk of collusion between former workmates, something the management of the banks should have been alert to.

The lack of connection between these groups is likely due to them being in different timezones. The group of four in the top left corner are most likely in Singapore, given the use of Singlish terms like “lah” in the chats. The larger group is based mostly in London with one in New York, based on references in the complaint. The group of three at the bottom may be in Dubai, although that is speculation.

The chats have a jovial feel with traders calling each other “bro”, “dude” and “mates” and show no care for clients on the other end of their schemes: for example, Deutsche Bank Trader B talks about  “wanna ramp it up like really just buy at mmkt and fk everyone so bad”. No doubt these chats will now be a lot more stilted as traders realise that collusive behaviour brings with it personal consequences like jail terms, as it did with LIBOR.

Nick Laird at has collated all the chats in chronological order here with a chart of the silver price underneath to help put the chats in context of market price action at the time. In general, the chat logs show collusion to tactically/short-term manipulate the London Silver Fix and spot market (curiously, there is no mention of Comex futures, but the plaintiffs are only giving us a sample in this complaint).

With the Deutsche Bank chat logs showing a collusive network across banks, it would seem unlikely that the defendants will be able to refute the antitrust claim by the plaintiffs. The next question is that of damages. As it stands, the tactical nature of the manipulations means that the defendants are likely to argue that the members of the class action can only claim damages if they traded at the same time as the chat evidence shows market manipulation.

To cover the entire class and increase the damages, the plaintiffs need to show that the traders’ actions resulted in ongoing suppression of the silver price.

In the chats the traders do not explicitly indicate any plans to suppress the price on an ongoing, multi-day/month/year basis or reference having to manage a large naked futures short position (which many have said is necessary for ongoing price suppression to exist). Monetary Metals has written on the naked short theory in the past, noting that it is not supported by observation of prices as contracts approach first notice day. To implement such an ongoing suppression using futures, the bullion banks would need to roll their oversized short position by purchasing the expiring contract and shorting the next contract. Such massive buying of an expiring contract would cause the basis to rise, yet the opposite occurs – see here for more details.

Absent such explicit proof of suppression, the complaint masses a number of different econometric analyses to show that the London Silver Fix impacts other silver prices in the wider market.

The analysis does not start off well where, on page 40, the plaintiffs fall for the “correlation proves causation” fallacy claiming that “the prices of COMEX silver futures contracts are directly impacted by changes in the Fix price, which determines the value of the physical silver underlying each COMEX silver futures contract” on the basis of a regression analysis between futures closing prices and the Silver Fix of 99.85%. The defendants will be able to rebut such claims by referring to papers like London or New York: where and when does the gold price originate? which show that neither London (spot) nor New York (futures) are dominant in terms of price and that the dominant market switches from time to time.

We feel the plaintiffs are on stronger footing when comparing spot and futures price movements around the fix (see page 71 onwards, figures 24 to 28). The plaintiffs’ show a few charts demonstrating a spot to futures linkage but we would suggest that to win the case the analysis would benefit from looking the spread between spot and futures markets, or the basis, which we report on each week. For an example of the application of basis to forensic price analysis, see our November 13 report where we show that the drop of $30 in the gold price around the London Fix on November 11 was driven by selling of futures as the gold basis began to fall before the price did (see below).


The final challenge for the plaintiffs is to prove that the impact of the banks’ manipulative actions persisted “well beyond the end of the Fixing Member’s daily conference call” (see pages 81-83). While the plaintiffs claim that this is proven because the mean of the cumulative unadjusted returns “on Down Days does not recover fully from the price drop that occurs at the start of the Silver Fix”, the very wide confidence interval implies that on a number of days it did recover. It will be interesting to see how the defendants respond to this crucial claim.

The Deutsche Bank chat logs have enabled the plaintiffs to get over the first huge hurdle of showing antitrust behaviour. The focus of media reports to-date on the colorful chats gives the impression this is a closed case but the lack of explicit chats discussing management of a large naked futures short position and/or plans to supress the price over months is unusual. One would expect that managing such a large ongoing supression would be the main focus of discussions between traders. It is possible that the plaintiffs may have withheld this evidence for strategic purposes but if not, this case may end up turning into a battle of the bookworms with academics arguing econometrics and questioning what does the “mean of the cumulative unadjusted returns” really mean.

Whichever way the case develops, bullion banks now have increased costs of supervising and managing the risks that precious metals trading desk “bros” might be looking to “fk” their clients. Combined with the potential that the “cost of doing business will jump – perhaps by 300% on one estimate” due to Basel 3 rules, some may decide to do a Deutsche Bank and pull out of the market. The result may be further consolidation in bullion banking and give regulators more justification to push those that remain out of “dark” OTC trading and on to “lit” exchanges.