In this article, we show intraday graphs of both metals for Wedneday’s price spike and Friday’s price crash, and provide our analysis of the basis moves.
Here is the gold intraday graph for Wednesday November 1.
This is our recurrent pattern. Basis rising with price, though we read it as reluctant to fall when price pulls back. Not a picture of robust demand for metal.
Here is the silver graph for the same day.
The silver basis shows the same tendency as gold, only stronger. Rising with rising price, but not pulling back with falling price. All the demand shown here is for silver futures contract.
The problem is that what can be bid up with leverage in the future market can, well, y’all know what happened on Friday.
On Friday, gold behaved differently than silver, as we shall see. First, here is the gold graph.
The price is falling all through the wee hours (GMT) through around 12:30pm. And the basis (February contract) is generally falling with it. The price has a little blip back to its previous level, and the basis blips with it. But not as much. Then the price drops, and basis with it. As price begins to ramp after 3pm, the basis does not really want to rise, staying around 1.09%.
This shows a picture of selling of futures, and along with that, gold becomes measurably less abundant to the market. Sellers of futures there may be, below $1270, but sellers of metal not so much.
Here is the silver graph.
During the long, slow slide in the morning, the silver basis (March contract) is moving opposite to gold’s. It is rising. So the price is dropping, not due to selling of futures, but selling of physical metal. Then the big crash, and down goes the basis as well. That was the selling of futures, after which silver also became less abundant.
Note the absolute magnitude of the bases. Post-crash, gold is under 1.1% but silver is over 1.2%. The silver contract has a longer duration, but silver basis tends to be lower for the same maturity.
© 2017 Monetary Metals