Monetary Metals Supply and Demand Report: 3 May, 2015

For a few days early this week, it got exciting. It looked like the dollar might finally resume its collapse. The gold community was all abuzz. Was this the big gold breakout, when gold goes up and up, and gives endless profits to gold investors the way the stock market has been doing these past [...]

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3 replies
  1. Jim_n says:


    Two observations and a conclusion:

    First, the various gold charts (comments here have no reference to silver) that you show are essentially daily charts that typically follow the Comex contract roll from a nearby active front month to the next active delivery month. We have no contention with that. However, we would prefer to see your charts structured on a continuous basis (basis here not referring to cash vs. next futures differential) as we do with futures markets charts for our long-term technical perspectives. This may seem like an inconsequential quibble but there is a world of difference between using individual futures contract daily charts that switch on expiration to the next active futures contract’s historical data and a futures continuation chart that splices the next month data into a previous month’s expiration price. The former reflects the market’s inherent contango – a distortion – whereas the latter does not.

    Second, looking at your latest charts (May 3, 2015) the $gold (mg gold) price is below its March 2015 high and that is below its November 2014 high while the June Comex basis and co-basis readings are way below/above their respective November 2014 levels. Obviously a major divergence has developed.

    Our published work dating back to July 2013 made a case for a long-term gold price low in the $1155 – 1144 spot Comex area and in subsequent research (March 2014) we considered potential for a rogue low at $1112. The low-to-date by our methodology is $1130.40 on November 7, 2014 but the official Comex value for the same date is $1132.90. Comex gold action in November-December 2014 was climactic – suggesting that the 2011 – 2014 price downtrend was tapped out. As we interpret your latest report the June Comex gold market basis, co-basis and $gold price relationships are way out of line with a $market that is going to move below $1130.

    In the long-term context that is based on your methodology there may be no compelling reason, other than your valuation model that considers the “fundamental” price of gold to be in the $1275 area vs. the Friday Globex last sale at $1177.40, to warrant strong commitment on the long-side of the market. In our long-term context, particularly given your basis/co-basis calculations, we are beating the drum for a major low and subsequent trend turn. We will eat those words if spot Comex trades below $1100.

  2. miamonaco says:


    At what gold cobasis level (eg backwardation) would you think it would take for you to conclude, all else being equal, that the gold market has turned and a new leg up has likely begun? For instance, .75% or 1%?


  3. Keith Weiner says:

    Thank you for some very thoughtful comments.

    Jim_n: Regarding the data series you request and trade recommendations, more soon… 🙂

    miamonaco: It’s not just level, but how the bases move when the price moves. To call a durable price increase, I’d want to see the cobasis remain steady as price rises. Or even see the cobasis rise a bit. In the current market mode, every time price rallies, it’s like the air is let out of the cobasis balloon.

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