Silver Rocket Report 6 Dec, 2015

The prices of the metals moved mostly sideways this week. That is, until Friday. Then foom! (Foom is the sound of a rocket taking off.)

From 8 to 12 a.m.  Eastern time the price of gold rose from $1,061 to $1,087. Not surprisingly, the silver price rose a greater percentage, from $14.14 to $14.59.

The catalyst seems to be the Bureau of Labor Statics jobs report. There were a few more jobs created than expected, which means the economy is doing well and/or the Fed is more likely to raise interest rates this month (the Fed has said it is basing its decision on labor market conditions, among other indicators). Whatever it was, it lit the fuse and sent the silver price up 45 cents. It held this level, and this represents the entire silver price gain for the week.

Many readers have asked us what we think of technical analysis. Our challenge with it, is the attempt to predict future price changes from past price changes. This is especially so in the gold and silver markets, as there are such large stocks relative to flows. In gold, by official estimates, the stocks to flows is around 70 years. Compare this to ordinary commodities, where this ratio is more like 0.25 years.

Why do we mention stocks to flows in this context? The speculators are trying to move something of much greater inertia. While one could conceivably corner the market in rare earthium, it’s impossible with gold or silver. Just ask Herbert and Bunker Hunt, or Warren Buffet.

The movement of stocks in and out of carry tells us about the speculators, because we can watch their impact on the basis. Speculators can push the price around—temporarily. But they can’t move it durably, because the hoarders are accumulating or de-accumulating much larger quantities. To use an analogy to flowing water, one could easily divert the water on one’s driveway, but not a major river.

We will look at how Friday’s price jump affected the silver term structure. But first, here’s the graph of the metals’ prices.