The Last Contango Basis Report: Special Update
Since we wrote the Basis Report on Sunday afternoon, the markets have imposed further violence on the prices of both gold and silver. The gold price is $150 lower, and the silver price is $23, $3 lower.
We were so curious about what would happen to the basis on Monday that we assumed readers of the Basis Report would be as well.
Gold Bases for June and December
There has been backwardation in the June gold contract. The June cobasis fell in all this selling! This means there was more selling of physical than of futures. While this does not mean that there will be further price declines from here (the price was $1400 when this data was taken), it is hardly a bullish sign.
Silver Bases for May and December
In silver ($23.70 at the time this data was taken), we see the cobases for both May and December falling.
Cobasis = Spot(bid) – Future(ask)
In order for the cobasis to fall, either the future is bought, which lifts the ask. Or spot is sold, which presses the bid. I think we can safely conclude it was the latter.
Conclusion: holders of metal capitulated. There could be more capitulation coming, though we would not recommend a naked short position here. Our recommendation of long gold / short silver has done well so far, and we do not change that call today.