Monetary Metals Supply and Demand Report: 20 Oct, 2013

On Thursday, the prices of gold and silver took off 50 dollars and 54 cents, respectively, on a statement by Dallas Fed President Dick Fisher. He declared that, “fiscal shenanigans have swamped QE taper prospects”. That was enough to light the fuse. As always, the question is: speculators or hoarders? Read on. We are interested [...]

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6 replies
  1. jtibbs says:

    Hi Keith,
    Nice work. Quick question – why is the Cobasis-Basis spread for silver so much smaller than the Cobasis-Basis spread for gold? Is it because the Silver price spread is larger than the gold price spread? Thank you, Jeff.

  2. Keith Weiner says:

    jtibbs: Thanks for your question. Ordinarily, what one would expect is that the basis and cobasis curves would be a mirror image of one another. The higher the basis, the lower the cobasis and vice versa. It is not possible for both to be above zero at the same time, for example.

    In silver, we have this tendency for the basis to drop like a rock. At times in the past, this was accompanies by a rising cobasis, but this is not really occurring at the moment. By the definition of basis = Future(bid) – Spot(ask) and cobasis = Spot(bid) – Future(ask), how can we get a dropping basis and at the same time dropping cobasis? It happens if we get a wider bid-ask spread.

  3. Greg Jaxon says:

    Thanks yet again for this valuable summary, Keith. Would it be fair to sum it up as saying that gold remains under moderately strong hoarding pressure, but that the this pressure seems to be pacing itself so as not to drive gold into permanent backwardation? Your observation that the supply is responding to mild price changes says to me that the market can move smoothly in and out of backwardation over a few of the shortest contract months. Doing this for a while is likely to take all the “alarm” out of the condition itself, and should help the largest hoarders to achieve their objectives if they remain patient.

    I’ve been re-reading Fekete’s “Kondratiev’s Long-Wave” essay (Jan 2005). In addition to several prescient paragraphs on the (then unimaginable) credit crunch, it suggests that the onset of hoarding pressure of this magnitude begins a turning point in that cycle (from deflationary to inflationary). Where do you see us on that (very) large trend? Would you expect hoarders to be followed eventually by commodity speculators and severe price inflation to set-in?

    This week’s data suggest that gold speculators are still at work on the margins, but that the trend is driven by gold hoarders, right? What will the data look like in the next inflationary phase of the K-60y cycle? It cannot have been the case that gold went into “permanent” backwardation during every Kondratiev inflationary phase, although in a sense it did in 1971 when the Fort Knox gold went off the market.

    These are not urgent questions, they are more of the existential variety: why are we where we are? Where is this all taking us?

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