Claim-Less Delirium

Yesterday, the Department of Labor announced that initial jobless claims dropped. Quite a lot. So naturally, markets reacted. The stock market began to rise. The euro rose, at least for a while.

 

Initial weekly unenjoyment claims over the past 20 years. Can you say “contrary indicator”? The most recent palpitations in this measure were driven by assorted named hurricanes making landfall – a very similar effect could be observed in 2005 when Katrina devastated New Orleans. What is most remarkable though is that in the QE-distorted bubble economy initial claims have actually been driven way below the levels of early 2000, which were long considered modern-day extremes. In fact, comparable numbers were last seen shortly after Nixon’s “temporary” gold default – nearly 50 years ago. Anyone holding or planning to buy stocks should ponder the correlation of this indicator with stock prices – its history suggests that right now is probably one of the worst times ever to buy stocks. The same conditions tend to midwife long term upward trends in gold. Don’t let the current boom-driven distortions fool you into believing everything is fine. Consider this example: from 1920 until late 1922 Germany’s unemployment rate stood at less than 2%, as the Reichsbank ran the printing presses at full throttle day and night. One year later it had surged to 25%. We obviously don’t want to insinuate that a replay of Weimar is underway; we only want to make the point that economic conditions created by massive money printing are an illusion invariably fated to be shattered. [PT] – click to enlarge.

 

And the prices of our favorite heavy metals rose, particularly silver. Silver was around its low of $16.92 before the report. Two and a half hours later, it was $17.26. Our first reaction was to ask, “really?? Falling unemployment causes silver buying?”

OK, sure, we suppose if everyone is maximally employed, they will buy more jewelry, electronics, solar panels, and all of the consumer products that contain silver. Or, perhaps they will buy silver coins and stack them.

However, a 2 percent increase in just over 2 hours seems overdone. So we turned to the data to take a look. We have described the basis theory many times. Today, let’s just state it simply.

If speculators are buying, they want leverage and they tend to use futures. If there is real demand for real silver, these businesses and stackers buy real metal. These are two different markets, with two different prices.

 

Anonymous stacker making little piles of 500 gram bars of glittering here-and-now gold [PT]

Photo credit:

 

Physical Demand Still Lacking

So we want to look to see the change in the futures price, not relative to where it was, but relative to the spot price. We know how much it changed over 150 minutes: 34 cents. We want to look at how much it changed relative to the price of real metal.

This difference between future price and metal price is called the basis. If the basis increased, it means that the price action was driven in the futures market. If a speculator bids up the price of a silver futures contract, then the basis goes up.

A market maker will pull up the price of spot silver — you will not see the price of the futures just divorce itself from spot. But the spot price is pulled up reluctantly, lagging behind.

Our data platform can show these moves in high resolution. Here is the intraday graph, showing the gold price and the gold basis (December contract) before, during, and after the move.

 

Thursday’s intraday moves in the gold price and the December basis. We would note that a rise in the gold price on a sharp fall in jobless claims is counter-intuitive, which makes it actually interesting (silver arguably had a better “reason” to be firm, on account of its industrial demand component). [PT] – click to enlarge.

 

The move in gold was about $6. Yet we can clearly see there is a pretty good correlation between basis and price. The conclusion: speculators saw the news item, decided gold should go up, and made it happen. They front-run what they theorize ought to happen.

But the fundamental demand is not there. Perhaps one of these days, they will be right and demand for physical metal will increase sharply after the speculators buy in. But we suspect that this was not that day.

Note though that the basis shows a rise at the very start of the graph, and remains high until after 10am (GMT) when the correlation with price clicks into place. We place less weight on the drop in the basis at the end. Sometimes spreads do funny things at the end of the trading day.

The percentage move in silver was about four times bigger.

Click here for What Made Silver Go Up (free registration required).

 

© 2017 Monetary Metals

 

Charts by stockcharts, Monetary Metals

 

Chart and image captions by PT

 

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

   
 

One Response to “What Made Gold Go Up Last Thursday”

  • Galactus:

    I really appreciate this explanation, I’ve been reading your blog off and on for some time and embarrassingly I figured if I read enough regarding your co-basis charts that understanding would sink in(and hasn’t, up to now).

    In my defense, I’m an outside observer(but I do stack gold/silver) with a business in an completely unrelated field and limited time to understand such things as my money is made else where, but my meager effort wasn’t really paying off until now(simply stopping in an reading from time to time)- thanks again.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The India-China Border Issue
      Deep-Seated Racism and Happy-Smiley Hypocrites In Delhi, people of the northeastern part of India, who have mongoloid features, are derogatorily called “chinky.” It is not unusual for men in Delhi to stop their cars to proposition a random girl from the northeast for a sexual encounter, assuming her to be “loose.” Indians' ignorance about the geography of their own country, their irrationality, superstitions and bigotry have been fertile ground in these days of Covid-19. People...
  • Silver “Scarcifies” – Precious Metals Supply and Demand
      On Monday, Silver got Scarcer – and Simpler On 23 July, we said:   “Well, it’s complicated.”   The action on 27 July was not.   Silver spot price vs. September basis   Notice the big drop in the basis starting around midnight (London time). It falls from over 7% to under 2%. To refresh: Basis = Future(bid) - Spot(ask) For the first two and half hours, the spot price is not moving. So, the only way the basis can drop is if the price...
  • Best Laid Schemes
      A Really Neat Bridge   But, Mousie, thou art no thy-lane, In proving foresight may be vain; The best-laid schemes o’ mice an’ men Gang aft agley, An’ lea’e us nought but grief an’ pain, For promis’d joy! – Robert Burns, To a Mouse, on Turning Her Up in Her Nest With the Plough (in extract), 1785     Installation of the final cable support pipes on the Gerald Desmond bridge replacement. Here is a drone video of the project. [PT] Photo by...
  • Silver Explodes — But Why? Precious Metals Supply and Demand
      Explosive Days in Silver The silver market witnessed another explosive day! At midnight (in London), the price of the metal was $26.90. By 9pm, it had rocketed up to $28.95, a gain of 7.6%. This is not normal. But then, we are not in a normal world.   After several years of going nowhere and a downside fake-out in March this year, silver has come to life rather dramatically... [PT]   The Republicans are spending like drunken Modern Monetary Sailors. And...

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!