A few days ago, I wrote about a big silver crash. The price dropped around 7.5%.
And the basis dropped from around 2% to 0.6%. At the end, we said:
"The key question is: what is the follow-through? If the price stays down and the basis goes back up, that will be a bearish signal. If the basis stays down, that means the silver market is markedly tighter at $24.50 than it was at $26.75."
This brings us to yesterday's silver dive. Here's the graph of the day's action.
At the start of our graph, 2am (London time) the price is just a bit lower than at the end of the first crash day. $24.25. But we see the basis is up to 2.3%. That's higher than it was at the beginning of the first crash day when the price was $26.75.
Clearly, there was some buying of futures in the meantime. Perhaps speculators were betting on a quick spike in price.
Over the course of the day, the price drops to around $22.80. This is a drop of 6%. And the basis ends at around 1.5%.
So, yes, there is a drop in basis. From a higher level than on the first crash day when the price was much higher. To a higher level than at the end of that day. And not that big a drop.
The selling was driven by futures, yet… yet… there was plenty of selling of metal too.
We are now $4 down in price, and the basis is not down very much. That means the abundance of silver to the market at $22.80 is not much less than it was at $26.75.
A price floor is expected when further selling the price down causes scarcity (and a price ceiling when further bidding the price up brings more and more metal to the market, i.e. abundance). Which hasn't happened yet. But we have some additional thoughts to share, so stay tuned.
By Keith Weiner via Monetary Metals
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Comments
Needless to say natural gas price volatility puts silver to shame but hey if the political strategy for ahem "winning 2020" ahem is to cut off everyone's benefit checks then absolutely precious metals will sell off. And of course must be added in the sudden lack of a bull market in long dated US Treasuries something of which has been true all Year.
I mean seriously...who are paying on those home mortgages at the moment again?
Anyhow Florida is going to open up no matter the consequence and I think that is the news to start the trading week next week, end of Q3 2020 and start of the crazy race for the White House 2020 Q4. Let us be clear: "the only reason the US and indeed Globally economy is not winning and winning big is because of the Chinese Covid-19 attack."