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Silver’s on Fire

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By Keith Weiner

Another interesting week, in that the price of silver separated from the price of gold. The former went no nowhere, while the latter gained over 4.5%.

We get the trading thesis, that if the precious metals are in a bull market, then silver should go up more than gold. Silver is the high-beta gold. It’s a smaller market, less liquid, and at the same time it’s the preferred vehicle for betting on a rising price.

We don’t quite get the thesis that gold is going nowhere or even down, and bet on silver which is going to $50. Yet that is now our market reality. Excited silver bulls have watched as pushed silver up from $14 in late January to $17. Meanwhile the price of gold went from $1,100 to $1,260 and then back down to $1,230. The gold silver ratio initially rose from 78.5 to over 83, and down so far to 72.7.

The growing consensus is bullish. As always, we’re more interested in the fundamentals than in opinions. Let’s look at the only true picture of supply and demand fundamentals. But first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio was down sharply again this week.

The Ratio of the Gold Price to the Silver Price

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The Gold Basis and Cobasis and the Dollar Price

Look at that. Carrying gold for June delivery is now even more profitable, over 55 basis points. This is up from last week at 51bps. The increase tells us something. However much gold was carried last week, it became incrementally more attractive to carry this week.

A positive basis is a measure of abundance. This is because it tells us about the profitability of buying metal to warehouse in carry trades. If profitability is rising, then that means the marginal demand for metal is to put into the warehouse.

Not a bullish sign, with a flat to falling price. Indeed our fundamental price for gold is still sagging, down another six Federal Reserve Notes this week.

Now let’s turn to silver.

The Silver Basis and Cobasis and the Dollar Price

How much higher can the price of silver go? One talk show host appealed to the “silver faithful” with a promise of a price to skyrocket to levels even they will find “stunning”.

Our response is to point to the basis (blue line). Note that we switched from May to July.

If gold is showing some signs of abundance, silver is practically lying about in the marketscape. To carry silver for July delivery yields an annualized profit of over 1.1%. The flow of metal into the carry trade must be a torrent. If anything occurs that will stun the silver faithful, it will be the epic drop in the silver price. This will be decried as a smashdown.

Our calculated fundamental price did rise a dime this week, but it’s more than two fiat units below the market price.

There are times when the basis analysis does not predict a price move. We certainly did not call for the price of silver to jump. It’s speculation, or “animal spirits” if you will. However, then the basis can predict the reversal of the speculative move.

To be conservative—though this risks missing a quick collapse—one should wait to see the momentum peter out. As we often say at times of bearishness, we NEVER RECOMMEND NAKED SHORTING a monetary metal. The way to play this move would be to go long gold and short silver. If the gold silver ratio is 70, short 70 ounces of silver for every ounce of gold you buy.

70 would be an attractive entry point (assuming momentum dies by then). If the ratio rises to 83, then you have a gain of over 18.5%. For example, if you buy 100oz gold and short 7,000 oz silver, you will pick up over 15.6 ounces of gold.

© 2016 Monetary Metals

http://silverseek.com/article/silver%E2%80%99s-fire-15508

SilverSeek.com – More great articles here: http://silverseek.com
 
Even more great article here: http://goldseek.com

Permission to Post Via GoldSeek

 
 



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    Total 6 comments
    • PaulTarsuss

      Silver isn’t exactly “on fire”. But say it does explode with profits? How many pieces are enough? 10? 20?…

      How about 30 pieces of silver?

      Most of us cannot buy enough silver to make much of a difference in our lives if it triples or quadruples in price. And those that can, have largely already been subverted by the love of money. If you buy shares of silver, how will you profit, if it streak high while the economy crashes? Will the powers that be, let you convert it to free money or keep it bound electronically for the purpose of keeping control of you? If you bought physical silver, how will you sell it and who will want it in exchange for physical goods in an economy gone rogue? It may end up owning you….

      Store up your treasure in heaven, friend. And remember:

      “‘They will throw their silver into the streets, and their gold will be treated as a thing unclean. Their silver and gold will not be able to deliver them in the day of the LORD’s wrath. It will not satisfy their hunger or fill their stomachs, for it has caused them to stumble into sin.”

      “He that would save his own life, shall lose it. He that would give up his life for my sake, shall save it.”

      So, is silver really “on fire”? Or is it that the people’s lust for shiny things is just as “on fire” today as in the days of our ancestors at the base of Mt. Sinai?

      The ‘golden calf’ is alive and kicking, and bigger than ever on wall street….

      http://chargingbull.com/images/chargingbull.jpg

      The defiant were ‘bullish’ about their material future at sinai, and where did it get them?

      http://www.arkdiscovery.com/mt__sinai_found.htm

      So, really then, How many pieces of silver is enough?……

      30 pieces is a princely some to those who place trust in it. Often times, there is but a small difference between trader and traitor. God bless the one who is able to trade up before time is up.

      “For what does it profit a man to gain the whole world, yet lose his own soul?”

      Christ said that the end cannot come without a great falling away first. They will give up their faith, saying, “My master is taking too long”….

      Now is the time to STAND UP and LIFT UP your heads, for your redemption draws near!

      /science-and-technology/2014/04/ancient-high-performance-electric-motors-discovered-that-are-still-in-production-2685290.html

      Good Journeys

      • Jawbones

        Just because somebody might have enough money to actually buy an amount of silver doesn’t make them sold out to money, and its also not always about making a profit. Precious metals offer a safety for your assets when you really dont have any plans on doing anything with it for awhile. Its also not as expensive as it seems with so many people who pay cable bills ranging from $100-$200 a month, that would equal out to 5-10 oz of silver a month.

        • PaulTarsuss

          True enough. Yet look at our economy. It didn’t get this way because people are responsible, egalitarian investors. It got this way because of the corrupting influence of the power of money.

          It will prove harder than most think to hedge with metals and not be affected adversely by a corrupted system.

          Which is why our Creator warned His children regarding these things.

          There are many today who are following a path that seems right to them, but it’s way ends in death. Many will, upon facing the results of their personal choices, stand mystified as to how they could possibly have worked as a traitor to their own souls.

          It is natural for self concerned citizens to seek out safety as collapse seems imminent, and such is prudent. Many see metals and other commodities as the safest haven.

          It is not.

          The investment with the best return, immediate and long term is not a metal…

          It’s A Rock.

          Good Journeys

    • dabu

      Funny. The silver and gold price history for the last 100 years is just a google search away. At no time in this history did either skyrocket during depressions or recessions. In fact, they bottomed out during the depression / recession, and went back to normal or a little higher a year or two after the depression / recession.

      Who keeps telling you hat gold and silver will skyrocket into the thousands and thousands, gold and silver dealers! Kinda like a car dealer who says “best price ever”!

      • Judge Roy Bean

        There are some major differences from then and now, the money was silver and gold backed and not fiat money. The Jew money manipulators pull the strings that cause gold and silver to rise and fall and set prices.

    • Judge Roy Bean

      Silver doesn’t burn, check out the purifier of silver:

      Mal 3:2-4

      2 But who may abide the day of his coming? and who shall stand when he appeareth? for he is like a refiner’s fire, and like fullers’ soap:

      3 And he shall sit as a refiner and purifier of silver: and he shall purify the sons of Levi, and purge them as gold and silver, that they may offer unto the Lord an offering in righteousness.

      4 Then shall the offering of Judah and Jerusalem be pleasant unto the Lord, as in the days of old, and as in former years.
      KJV

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