Monetary Metals Supply and Demand Report: 22 Sep, 2013

Heading into Wednesday, the prices of the metals were sagging. Then, the announcement from the Federal Reserve took everyone by surprise. They said they would not “taper” their purchases of bonds. And BAM! All prices rose sharply: stocks, currencies, and our favorite metals. In a minute, the gold price went up $25. Clearly, traders are [...]



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11 replies
  1. rabobank says:

    you repeatedly say that :”With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply.”

    Where is your decades silver stocks?

  2. Philip Barton says:

    While silver’s industrial usage is increasing, it is still only a percentage of what is mined… the flow. Over the decade from 2001 to 2010 silver’s average industrial and photographic usage represented just over 62% of mine supply. Slightly less than 38% was added to stock in the form of jewellery, silverware, coins, medallions and bullion.
    Logic insists that there are vast but unquantifiable stocks of silver in the world. The stock continues to rise, just as it has for at least 6,000 years.

  3. dcdrumm says:

    Thanks Keith for the very informative site. Am I right that you are saying that the “grain” of the contract roll is a downward pressure on the Oct futures contract? Why is this true, considering that for every long position somebody else holds the short position. Aren’t the shorts just as likely as the longs to want to roll their position to the next month?

    • eidetic says:

      Keith may answer otherwise but here is at least one reason for downward price pressure as a Comex futures contract approaches expiration: On first notice day (FND) and thereafter till expiration date, those holding long positions are subject to receiving a delivery notice – i.e. a notice that a short will deliver against the long’s contract (short holders do not receive a notice of intent from someone who is long). The long position holder, unless he will stand for delivery, must pay an actual cash price to maintain that position. Plus he will need to pony up the total cost of the contract upon its exercise. Since most futures contracts are not exercised, long position holders in particular exit their positions to avoid the delivery charge. Although there is an equal number of short and long contracts at all times, the short-term impetus during contract expiration is initiated by long holders. Thus, downside price pressure, albeit relatively small, dominates.

  4. bleubelle says:

    Keith,
    Ditto on James comments. The commentary that Keith provides is trustworthy. I look forward to all the posts from Keith and quite often review many of the older information he has provided.

    I also would be asking the same question from dcdrumm concerning the contract roll and the longs and shorts alike closing their positions out.

    Thanks again Keith.

  5. bvigorda says:

    “Thank you, Keith, for another enlightening analysis! Your website is the only fundamental analysis of gold and silver worth trusting!”

    Took the words right out of my mouth. I look forward to your every update, Keith.

  6. Keith Weiner says:

    Thanks everyone for your comments and your kind words. 🙂

    In response to dcdrumm, the basis theory is an arbitrage theory of the markets. In this theory, the short positions are not mostly speculators betting on a fall in price. In general, the risk of being long and short is asymmetrical. Betting long involves a finite amount of risk and unlimited gain. Betting short involves an unlimited risk and finite gain. This is especially pertinent to gold and silver, under collapsing currencies.

    At any rate, the shorts are typically carrying metal. They are content to deliver if called to do so, and are not under urgent pressure to buy October to close. There are also miners selling some production forward, and they won’t be buying either.

    The urgency to close the expiring contract is largely on the long side, though speculators who are short feel it also.

    If shorts had the same urgency, then what would happen? The bid would be pressed by longs selling to close and at the same time the ask would be lifted by shorts buying to close. As the market makers departed, we would see the bid-ask spread widening.

    basis = Future(bid) – Spot(ask)
    cobasis = Spot(bid) – Future(ask)

    The basis would be falling and the cobasis would be falling also. This has not been the pattern in recent years.

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