Deutsche Bank’s projection of Fed Balance Sheet.
If all central banks would do the same, then gold would need to double in price to keep up with money supply.
Month: July 2020
Backwardation in Lease Rates Vs. Silver Price
Lease rates on itself can also have backwardation whenever the lower maturity rates are higher than the higher maturity rates which you can see in the chart below.
Whenever this event occurs, the silver price goes higher.
Gold and Silver Checklist
To be able to time the precious metals market you need to take into account a lot of things. Here is a checklist.
1) Gold Forecaster Index
The gold forecaster index is a leading index for the gold price.
Always make sure that the gold forecaster index is in positive territory when buying gold/silver.
2) Taylor Rule Rate
Inflation starts to appear when the Taylor Rule Rate is above the Fed Funds rate. Only buy gold when the chart is in positive territory.
3) Misery Index
Another correlation is that between the misery index and gold. The more misery, the higher the gold price. High unemployment and high inflation are good for gold.
4) Real Output
Productivity is negatively correlated to inflation. Whenever productivity slows down, efficiency drops and goods become more expensive to make, resulting in higher inflation, which is good for gold.
Productivity is negatively correlated to inflation. Whenever productivity slows down, efficiency drops and goods become more expensive to make, resulting in higher inflation, which is good for gold.
5) Supply and Demand
Always check that gold and silver demand is higher than the supply of gold and silver. When mine supply goes down, precious metals typically move higher.
The USGS gives annual numbers on silver production and silver reserves.
As silver is a byproduct of base metal mining, it is important to watch copper production in Chile and Peru.
6) Gold Demand
Gold demand can be witnessed from many places. Watch the GLD stock level. If the stock level goes higher, the price goes higher.
Watch the COMEX gold numbers. They need to go up.
Watch the COMEX deliveries. They need to go up.
China gold demand can be found from the SGE deliveries. Make sure this number goes higher each month.
7) Silver Demand
Silver demand can be witnessed from the SLV stock level. If the stock level goes higher, the price goes higher.
Watch the Chinese SHFE warehouse numbers, which show Chinese silver demand.
Watch the COMEX silver numbers. You want these to actually go down because that would mean there is a shortage.
8) Central bank gold demand
Make sure to check if central banks are buying gold.
List of countries: https://tradingeconomics.com/country-list/gold-reserves
China central bank: http://www.pbc.gov.cn/diaochatongjisi/116219/116319/3959050/3959052/index.html
9) U.S. Mint Sales
U.S. Mint sales are a proxy for demand. You want this to go up.
10) Gold and Silver Premiums
When the premiums to spot price are high, this typically tells us that precious metals will go higher. You can watch the APMEX silver premiums.
Shanghai gold premiums can be found here.
11) Open Interest
The COT report gives indication of the short term moves. You want to see open interest come down and you want to see a low amount of commercial shorts. You can create your own chart at Barchart.
Gold COT report.
Silver COT report.
Barchart gold.
Barchart silver.
12) Managed Money Shorts
The COT report also gives info on swaps and managed money. You want to see a lot of managed money shorts, which will result in a short squeeze. You want to see the swap dealers being long the market (positive swap number).
The following chart shows that swap dealers move opposite of the gold price.
13) Backwardation
Make sure to buy gold when there is backwardation. That means there is an accute supply problem. You want a negative GOFO rate.
Gold Forward Rate GOFO = LIBOR – Gold Lease Rate GLR
LIBOR is close to zero.
Lease rates are negative.
That means we don’t see backwardation yet today.
Moreover, gold/silver bottoms out when the lease rate curve inverts.
14) Gold Futures Vs. Gold Spot Price
Watch the gold futures price. If this price diverges from the spot price, then gold is going higher.
15) Swiss Franc Vs. Gold
Watch the Swiss Franc for short term movements. A strong Swiss Franc is good for gold.
16) Seasonality
Gold/Silver is more likely to rise during the months of January, April, July, September and November.
17) Technicals
Besides all these fundamental reasons above, you need to check the technical picture as well. Buy gold when there is a breakout. (Jesse Livermore: “Follow the path of least resistance”)
U.S. Food Inflation is Soaring
Food inflation is at 4.5%.
Oil Storage
The current status on oil storage.
China Power Consumption Rises in June 2020
The V shaped recovery in China is continuing. Commodities like copper will do well.
Silver Supply and Demand
Silver industrial demand has plummeted, but it is forecasted that this will pick up later this year. Silver mine supply will be subdued this year due to shutdowns. The Silver Institute forecasts a silver price of $21/ounce by the end of 2020.
Peru copper production plunging
Peru copper production is plunging. Should be good for silver.
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Oil Inventories Vs. Rig Counts
Oil inventories and rig counts are negatively correlated. When inventories rise, oil producers will cut supply.
Correlation Economics (Backup) 
