Precious Metals

     

 

 

Respectable and Not so Respectable Assets

The price of gold went up 8 bucks, and the price of silver went up a penny last week. These were not among the capital assets that could be liquidated for greater quantities of consumer goods last week. Nor were equities.

 

A respectable, mother-in-law-proof speculation: the 10-year US treasury note. [PT]

 

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An Accident in Waiting

The price of gold dropped $20, and silver 43 cents. For reference, $20 was once worth just about an ounce of gold. Dollar was a unit of measure, a weight of gold equal to 1/20.67 ounce of fine gold.

 

A gold certificate from the time when the dollar still represented a fixed weight of gold [PT]

 

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Liquidity Shortage

Last week the price of gold rose $28, and silver $0.53. But the prices of the metals was not the big news last week. The price of repo — a repurchase agreement, to sell and repurchase a treasuries — skyrocketed. Banks were thirsty for liquidity, and only cash can quench it.

 

Last week’s “oops” moment in repo land as the overnight general collateral rate briefly soared to 10% (we will soon publish a detailed summary of the sequence of events that has led to this hicc-up). [PT]

 

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Big Moves in Silver

Last week, the prices of the metals fell further, with gold -$18 and silver -$0.73. On May 28, the price of silver hit its nadir, of $14.30. From the last three days of May through Sep 4, the price rose to $19.65. This was a gain of $5.35, or +37%. Congratulations to everyone who bought silver on May 28 and who sold it on September 4.

 

The recent move in silver [PT]

 

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Paying a Premium for a Lack of Default Risk

The price action got pretty intense last week! The prices of the metals were up Monday, Tuesday, and Wednesday. But Thursday and Friday, there was a sharp reversal and the silver price ended the week below its close of the previous week.

 

The net speculative position in gold futures has become very large recently – the market was more than ripe for a shake-out. [PT]

 

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Intense Price Action

The price action was pretty intense last week, most of it on Friday. The statement by President Trump, not to mention Fed Chairman Powell’s hint of further rate cuts, impelled people to buy gold and silver, whose prices went up $14 and $0.29.

 

10-year treasury note yield – plumbing new lows for the move… [PT]

 

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Incrementum Advisory Board Meeting of 31 July 2019

At the end of July the Advisory Board of the Incrementum Fund held its quarterly meeting (a full transcript is available for download at the end of this post). The board was joined by special guest Simon Mikhailovich, a financial market veteran who inter alia co-founded the Toqueville Bullion Reserve. The title of the transcript and this post was inspired by his remarks.

 

Special guest Simon Mikhailovich

 

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An Era of Low Time Preference

Last week the price of gold moved up another $16, and the price of silver was up $0.14.

 

10-year treasury note yield since 1999 – it is almost back at the multi-decade low of 2016. The only other time in history when US treasury yields were this low was in 1944-1945, when the Fed was actively suppressing yields in order to provide cheap financing for the war effort. One year later (from mid 1946 to mid 1947) the CPI jumped to more than 17% per year. By 1951 it had reached 21%. At that point the Fed and the US Treasury finally agreed that the Fed should stop pegging long term treasury yields – which promptly proceeded to rise relentlessly for the next three decades. [PT]

 

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A Myriad of Reasons to Buy Gold – But Small Holders are Selling

Big moves occurred in the prices of the metals last week, with that of gold up $57 and silver $0.77. We have now reached a price of gold (if not silver) not seen since 2013, when it was on the way down. What is causing this sudden spike in price and renewed interest in gold?

 

A well-known depiction of investor emotions over a complete market cycle. Interestingly, it appears as though many retail gold holders who held on to their gold through the 2011-2015 bear market are now selling, just as the market has reached what is normally considered to be the “hope” stage. Ironically, this is actually good news from a contrarian perspective. [PT]

 

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A Record Amount of Bonds with Negative Yields to Maturity

Last week the price of gold went up $22, while the price of silver dropped ¢17. The big news last week was that the yield on all German government bond maturities is now negative. They are also all negative in Switzerland. And in Denmark, all maturities out to 20 years are negative. Interest rates are dropping rapidly in the US as well.

 

More than $14 trillion in bonds now trade at negative yields to maturity – with more than 25% of all “investment grade” bonds afflicted with this policy-induced malady. This is essentially ensuring accelerated capital consumption. As you can probably guess, prosperity is not going to increase as a result. [PT]

 

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Spoofers vs. the Underlying Trend

The price of gold fell seven bucks, but the price of silver was up $0.16. In other words, the gold-silver ratio did a little more reverting to that long-forgotten mean.

 

Launceston Castle in Cornwall, an example of a motte and baley fortification. The castle was built in 1067-1071 AD, either by the Count of Mortain (the half-brother of William the Conqueror) or Brian of Brittany. [PT]

Photo credit: P. Vincent

 

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Speculators Finally Wade Into Silver

Well, wasn’t this an interesting week! The price of gold was up a pedestrian $10, mere noise in the long-term signal. But in silver, we see plus one dollar. It was practically inevitable with the gold-silver ratio at an all-time high, after a big run up in the gold price with no corresponding run in silver.

 

1000 oz. good delivery silver bars – one COMEX futures contract refers to five of these shiny door stops. Recommendation: do not let them fall on your toes. [PT]

 

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Most read in the last 20 days:

  • Repo Quake – A Primer
      Chaos in Overnight Funding Markets Most of our readers are probably aware that there were recently quite large spikes in repo rates. The events were inter alia chronicled at Zerohedge here and here. The issue is fairly complex, as there are many different drivers at play, but we will try to provide a brief explanation.   There have been two spikes in the overnight general collateral rate – one at the end of 2018, which was a first warning shot, and the one of last week,...
  • Curious Events in Risk-Free Collateral-Land - Precious Metals Supply and Demand
      Liquidity Shortage Last week the price of gold rose $28, and silver $0.53. But the prices of the metals was not the big news last week. The price of repo — a repurchase agreement, to sell and repurchase a treasuries — skyrocketed. Banks were thirsty for liquidity, and only cash can quench it.   Last week's “oops” moment in repo land as the overnight general collateral rate briefly soared to 10% (we will soon publish a detailed summary of the sequence of events that...
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  • The System Scrapes By - Precious Metals Supply and Demand
      An Accident in Waiting The price of gold dropped $20, and silver 43 cents. For reference, $20 was once worth just about an ounce of gold. Dollar was a unit of measure, a weight of gold equal to 1/20.67 ounce of fine gold.   A gold certificate from the time when the dollar still represented a fixed weight of gold [PT]   Today, it is an irredeemable currency, defined not as a unit of weight but as a unit of central bank liability which is backed by government debt,...
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      Respectable and Not so Respectable Assets The price of gold went up 8 bucks, and the price of silver went up a penny last week. These were not among the capital assets that could be liquidated for greater quantities of consumer goods last week. Nor were equities.   A respectable, mother-in-law-proof speculation: the 10-year US treasury note. [PT]   However, the consumer goods stockpile stored in treasury bonds (to extend our half sarcastic, half tongue-in-cheek...
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      Under the Influence   “This feels very sustainable.”  – Federal Reserve Chairman Jerome Powell, October 8, 2019   Understandable confusion... [PT]   Conflict and contradiction.  These were two of the main themes reverberating around the world of centralized monetary planning this week. On Tuesday, for instance, a novel and contradictory central banker parlance – “reserve management purposes” – was birthed into existence by Fed Chair Jay...

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