Are Bank Woes a Good Reason to Buy Silver?

Last week, it was the Fed’s magic boosting up the price of silver. This week, the slow slide in the silver price resumed, going all week except during peak fear about the woes of Deutsche Bank.

 

dbDeutsche Bank HQ in Frankfurt – the bank is under assault from heavy regulatory fines

Photo credit: Vyborg

 

When it looked bleakest—and the potential size of the capital-eating fines was highest—there was a wicked little rally in the metals, spiking silver up from below $19.10 to $19.70 in a few hours. However, the price reversed just as fast, on news of a settlement with the US Department of Justice.

Folks, what do we know about the price of the monetary metals? But if we had a thought, it would be that when the real run on a major too-big-to-fail bank occurs, the primary flight will be into the dollar, with some capital flows into gold. There will be a rising gold-silver ratio. Not a good time to bet on silver.

In any case, that does not appear to be happening just yet, or at least not the week of Sep 26. In yet another variant of irony, our running inside joke-slash-point bears repeating for a third week in a row:

Just repeat after me: “the Fed makes the economy more stable.”

A major money center bank is in the throes of, well, the throes of something serious.

 

Fundamental Developments

As always, the central question to be answered in this Report is simple. Is this a change in the fundamentals of supply and demand?

Read on for the only true picture of the fundamentals of the monetary metals. But first, here’s the graph of the metals’ prices.

 

chart-1-pricesPrices of gold and Silver – click to enlarge.

 

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It was up this week.

 

chart-2-gold-silver-ratioGold-silver ratio – click to enlarge.

 

For each metal, we will look at a graph of the basis and co-basis 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 co-basis in red.

 

Here is the gold graph.

 

chart-3-gold-basis-and-cobasisGold basis and co-basis and the dollar price – click to enlarge.

 

Well, the price of gold is down some twenty one bucks (seen as a small rise in the green line, which is the price of the dollar as measured in gold). With that, we see a small rise in the scarcity (red line).

The fundamental price that we calculate—the price at which the metal would clear, absent the leveraged speculators — is down $12, now below $1,300.

Now let’s look at silver.

 

chart-4-silver-basis-and-cobasisSilver basis and co-basis and the dollar price – click to enlarge.

 

The fall in the price of silver was greater than that of gold, in proportion. There was a slight increase in scarcity at the new price. But not a lot.

We calculate a fundamental price drop of 58 cents, to just above $16.

Yes, the fundamentals call for a price $3.30 below the market price. This does not mean to go out and short silver (we never recommend naked shorting a monetary metal). It does not mean that the price of silver will drop immediately in the morning.

If a rumor of crisis at Deutsche could cause the price to spike 60 cents last week, then it could cause it again this week. If traders have simple heuristics of what to buy and what to sell (the silver price chart looks a bit like the inverse of the Deutsche share price chart), then that will not likely change so quickly.

One thing’s for sure, silver is a lousy bet at this price with these fundamentals. Buying silver right now—at least if you’re buying it on speculation of a price gain—is almost the textbook definition of a Ponzi scheme. Previous buyers will only get their capital out if new buyers come along and bid up the price even more. But the only certainty is that one day, they won’t.

 

Charts by Monetary Metals

 

Dr. Keith Weiner is the president of the Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Federal Reserve is a Barbarous Relic
      The Sky is Falling   “We believe monetary policy is in a good place.” – Federal Reserve Chairman Jerome Powell, October 30, 2019.   The man from the good place. "As I was going up the stair, I met a man who wasn't there. He wasn't there again today, Oh how I wish he'd go away!" [PT]   Ptolemy I Soter, in his history of the wars of Alexander the Great, related an episode from Alexander’s 334 BC compact with the Celts ‘who dwelt by the Ionian...
  • Incrementum 2019 Gold Chart Book
      The Most Comprehensive Collection of Gold Charts Our friends at Incrementum have just published their newest Gold Chart Book, a complement to the annual “In Gold We Trust” report. A download link to the chart book is provided below.   As of late 2019 an ounce of gold will get you 115 liters of beer at the Munich October Fest – a 7-year high. Cheers!   The Incrementum Gold Chart Book is easily the most comprehensive collection of charts related to or relevant...
  • The Golden Autumn Season – One of the Most Reliable Seasonal Patterns Begins
      The Strongest Seasonal Stock Market Trend Readers may already have guessed: when the vibrant colors of the autumn leaves are revealed in all their splendor, the strongest seasonal period of the year begins in the stock market – namely the year-end rally.   Will Santa wake up this year? Last year he was clearly missing in action – but that is actually the exception, not the rule [PT]   Stocks typically rise in this time period. However, there are questions, such...
  • Riding the Type 3 Mega Market Melt Up Train
      Beta-driven Fantasy The decade long bull market run, aside from making everyone ridiculously rich, has opened up a new array of competencies. The proliferation of ETFs, for instance, has precipitated a heyday for the ETF Analyst. So, too, blind faith in data has prompted the rise of Psychic Quants... who see the future by modeling the past.   Gandalf, quant of Middle-Earth, dispensing sage advice. [PT]   For the big financial outfits, optimizing systematic –...
  • Maybe the West Should Adopt Iran’s Nuclear Weapons Policy
      The Rise of Total War Prior to the modern age, when war was engaged in, combatants, for the most part, acted by a code of conduct which attempted to minimize civilian deaths and the destruction of non-participants’ property. With the onset of the democratic age and the idea of “total war” such modes of conduct have tragically fallen by the wayside, the consequence of which has made warfare far more bloody and destructive.   Iranian Seiji-2 missile. Of course, we...
  • Is the Fed Secretly Bailing Out a Major Bank?
      Prettifying Toxic Waste The promise of something for nothing is always an enticing proposition. Who doesn’t want roses without thorns, rainbows without rain, and salvation without repentance?  So, too, who doesn’t want a few extra basis points of yield above the 10-year Treasury note at no added risk?   The yield-chasing hamster wheel... [PT]   Thus, smart fellows go after it; pursuing financial innovation with unyielding devotion.  The underlying...
  • Bitcoin Moonshot - Precious Metals Supply and Demand
      Bitcoin Gets Juiced The prices of gold and silver were up $19 and $0.48 respectively last week. But that’s not where the massive inpouring of groceries went.   When Friday began (Arizona time), Bitcoin’s purchasing power was under 75 grocery units (assuming a grocery unit is $100). By evening, speculators added 25 more grocery units to the same unit of bitcoin.   Bitcoin, daily – shortly after breaking below an obvious lateral support level, Bitcoin did an...
  • Maurice Jackson Interviews Brien Lundin and Jayant Bhandari
      Two Interesting Recent P&P Interviews Our friend Maurice Jackson of Proven and Probable has recently conducted two interviews which we believe will be of interest to our readers. The first interview  is with Brien Lundin, the president of Jefferson Financial, host of the famed New Orleans Investment Conference and publisher & editor of the Gold Newsletter – an investment newsletter that has been around for almost five decades, which actually makes it the longest-running...
  • Targeting nGDP Targeting – Precious Metals Supply and Demand
      Everybody Has a Plan Not too long ago, we wrote about the so called Modern Monetary so called Theory (MMT). It is not modern, and it is not a theory. We called it a cargo cult. You’d think that everyone would know that donning fake headphones made of coconut shells, and waving tiki torches will not summon airplanes loaded with cargo. At least the people who believe in this have the excuse of being illiterate.   A few images documenting cargo cults on the island of...
  • Volatility Galore - Precious Metals Supply and Demand
      Fun and Regret Ex Nihilo The price of gold dropped last week, but not calamitously. From $1514 to $1459, or -$55. The price of silver dropped. Calamitously. From $18.08 to $16.75, or -$1.33. -3.6% vs -7.4%. Once again, silver proves to be volatile relative to gold.   Silver jumped off a cliff again last week – the chart formation nevertheless continues to look corrective. [PT]   In standard vernacular, the metals lost purchasing power this week. Purchasing power can...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!