Monetary Metals Supply and Demand Report: 23 Nov, 2014

No fireworks this week, with the gold price ending +$13 from last week and the silver price ending +$0.15. Some chartists (and of course the ever-bullish contingency) are calling for a bottom in gold and the price will soon resume its way up to $5,000 and limitless profits. We have a slightly different view. The [...]



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10 replies
  1. petter_w says:

    Keith,
    the falling of the basis in the december contract means a lack of demand for it vs. the physical metal – hence the price difference between spot and future and the backwardation. How can you attribute the falling basis to naked longs selling? Can’t this just as well be shorts holidng contracts wanting to take delivery of metal to cover a short and simply lack of buying interest in the december future contract vs. the physical metal?

  2. rutz007 says:

    Fantastic analysis as usual and no doubt the most accurate record of where the gold price has been, and likely is going in the near future, but the funny thing is that although I want to buy gold I never feel encouraged to do so when I read your posts. Maybe I should just ignore everything and go with my gut feel that tells me to buy because who knows when that day will come when the unexpected happens, be it a war announcement in the Ukraine or the shadow banking system in China crashing or some country leaving the Eurozone or Japan imploding under it’s quadrillion yen of debt or Russia announcing that because of all the pressure on its currency that it is now backing it with gold. Perhaps on that day when the bid is $2,000.00 and no ask, perhaps on that day I may regret not having bought because I was worried about the cobasis. Are we not seeing the forrest for the trees ?

    • RD says:

      Anything positive regarding gold and especially silver ?

      Nope, certainly not here !

      The analysis of this website, even if correct, are fully dedicated to the actions of western futures speculators.

      That’s why the conclusions here are always the same that what is described in technical analysis which are bearish for most of them on a medium and long term basis.

      • Keith Weiner says:

        JD: I’ve seen many technical analysts call for a silver price breakout over the past few years. We’re not doing TA here.

        I will be the first to trumpet skyrocketing prices. Just as soon as the supply and demand fundamentals change.

        In the meantime, what would you rather have: confirmation or accuracy?

        • RD says:

          It is to the cave or to the moon : nothing between !

          If you take some people with a strong bias for gold (for whatever the reasons) you would still find some bullish TA since april 2013 but in the whole analysts community such big banks and even people like financialsense most of them are bearish for quarters if not years…

          Considering the fact that your analysis can all be considered as strong sell for monetary metals (especially silver I agree) I guess like sandeep jaitly that you are long T bonds and Procter and gamble stocks or prime real estate in London (very interesting at 30 000 USD a square meter as we are going to da moon at 100 000 USD) ! But in this case as him, it is time to search for a job in the city or wall street, no need to invoke the carl menger’s mighty spirit !

          I would also be curious to know if your are looking for the bases in the shanghai gold exchange ?

          • Keith Weiner says:

            RD: I said the fundamental price of gold is $50 over the market price. That’s hardly to the cave. Also, I rather suspect that Goldman’s reasons for why the gold price will go down differ from mine. 😉

            I am on the record as saying interest rates will continue to fall. Although I don’t recall ever suggesting that anyone buy government bonds, that would be the obvious way to trade that thesis. I don’t recommend that for two reasons. One, I don’t want to feed the beast. Two, I don’t want to give investment advice.

  3. miamonaco says:

    Keith,

    How can we square the current gold cobasis with the fact that the 1, 2, 3 and 6 month GOFO rates are in a greater state of backwardation this morning than they’ve been in the last 5 years?

    Thanks

  4. Keith Weiner says:

    Thanks for your comments and questions.

    Petter: The near-month contract departs from the farther months as it approaches expiry. So this is not lack of demands for futures per se, but lack of demand (and indeed massive selling) of one contract. Other contracts are not experiencing this selling. Regarding shorts, they do not get metal on delivery–they have to deliver metal. If they are naked, then that means they don’t have any metal. A naked short must cover his short before First Notice Day, i.e. buy the contract.

    rutz: Broadly, I hope readers get three take-aways from the Supply and Demand Report:
    1) the permabull arguments, manipulation theories, and mine supply vs. electronics demand approaches are not helpful to predict prices
    2) the price of gold can go down as well as up, and there is a way to predict both
    3) the paper currencies are collapsing, though this is not evident in consumer prices or the price of gold. Everyone should own some gold, because gold is the only financial asset that will survive when the backing for all other financial assets–the Treasury bond–fails
    4) An increase in the gold price is not a gain–you have more dollars but each of them is worth proportionally less (not necessarily true with a gain in the silver price). One should measure the dollar, and everything else including your net worth, in gold.

    miamonaco: I wrote an article in 2013 about GOFO and its correlation to the basis. I think it’s important to use a stricter definition of backwardation. It may be good enough for government work to say “future is below spot”. But as students of spreads, that is arbitrage, we can do better. There are times when there is an actionable market condition. When the bid on the future is below the ask on spot, one can put on a decarry. That is, sell a gold bar and buy a future. One ends with the same gold as before, but with a profit. In other commodities, if this condition occurs it indicates a shortage. If anyone had wheat or whatever, they would take the trade. The fact that they are not means no one has unencumbered wheat. But in gold, there is no such thing as a shortage (or glut), owing to its high stocks to flows. Backwardation means gold owners are becoming distrustful enough to walk away from a “risk-free” profit (free from conventional risks). Negative GOFO does not necessarily show this, it is a quote made by banks.

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