Time for a Silver Trade?

The price of silver has been going down,and then down some more.From over $28 a year ago, and over $26.50 a month ago, it’s now at a new low under $22.50. Four bucks down in a month.

However, it’s been behaving differently than gold behind the scenes. Let’s look at the gold and silver basis charts to see.



Gold Fundamentals – Gold Basis Analysis



The gold basis (i.e. abundance to the market) was humming along around 0.5%. Then, as the price began to rise, it rose also, now around 1.5%. Gold would seem to be more abundant, first with a higher price (inverse to the price of the dollar, as measured in gold, indicated on the chart). Now, the gold basis is showing that it still looks abundant, even at a lower price.

Now look at silver.


Silver Fundamentals – Silver Basis Analysis



The silver basis also rises around the same time. But, ithas fallen back to around the same level as before, under 1%.

We said gold “would seem” to be more abundant. However, something else changed during this time. The Fed hiked interest rates. The Fed does not control LIBOR (the London Inter Bank Offered Rate), but LIBOR tends to go with the Fed Funds Rate. And LIBOR went up a lot—from around 0.3% to around 1.3%.

Recall that the basis is set by the marginal arbitrager, who carries gold. Speculators bid up futures contracts. Then the arbitragers borrow (at LIBOR), buy gold metal, and sell futures. They do this to make a small spread. If the interest rate is higher, they don’t make a profit unless the basis spread is wider.

The gold basis is not up as much as LIBOR. The silver basis is even more telling.


Comparing PreciousMetal Fundamentals

Let’s look at (one-year) graphs of the Monetary Metals fundamental prices of both metals.


The fundamental price (black line) is only down a hair from its high last month, and still near $2,000.


The silver fundamental is up considerably from recent levels, and nearly to where it was a year ago—well over $25.


So, Is It a Good Time for a Silver Trade?

Let’s look at one other chart. This is the ratio of the gold basis to the silver basis, and the ratio of the gold cobasis to the silver cobasis.


When the red line is above the blue line, gold is the scarcer metal to the market. Now this has flipped, and the spread is wider than it’s been in years.


This may be a good time for a silver trade. Not only are the fundamentals looking better for silver relative to gold, but the gold-silver ratio is over 82.


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.




Dear Readers!

You may have noticed that our header carries ab black flag. This is due to the recent passing of the main author of the Acting Man blog, Heinz Blasnik, under his nom de plume 'Pater Tenebrarum'. We want to thank you for following his blog for meanwhile 11 years and refer you to the 'Acting Man Classics' on the sidebar to get an introduction to his way of seeing economics. In the future, we will keep the blog running with regular uptates from our well known Co-Authors. For that, some financial help would be greatly appreciated. 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:

  • Forensic Analysis of Fed Action on Silver Price
      Forensic Analysis of Fed Action on Silver Price The last few days of trading in silver have been a wild ride. On Wednesday morning in New York, six hours before the Fed was to announce its interest rate hike, the price of silver began to drop. It went from around $22.65 to a low of $22.25 before recovering about 20 cents. At 2pm (NY time), the Fed made the announcement. The price had already begun spiking higher for about two minutes.     As an aside,...

Support Acting Man

Austrian Theory and Investment


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!