Why do gold and silver frequently trade in synch?

[FRED]

Thread to explore the mystery of days, like today, when gold and silver trade in synchronized fashion. The charts are shown as animated gifs of the same chart captured at the same time for both gold and silver to show the synchronization.

The first example, from June 5, shows non-synchronized trades.

http://www.itulip.com/images/goldVSsilverNOSYNCH060808.gif

The second example, from June 19, shows synchronized trades.

http://www.itulip.com/images/goldVSsilverSYNCH061908.gif


The second example, from doay, shows synchronized trades.

http://www.itulip.com/images/goldVSsilverSYNCH062208.gif

Why it matters: In our theory of the small trade within the big trade, funds are moving the prices of silver and gold. It appears that many have gold/silver trades that are made together, very likely correlated to interest rates. If that's true, then a surprise Fed rate hike, were one to occur, will likely take gold and silver down hard together. What is odd is that the synchronization is not consistent. Thoughts?

[zoog]

Well, in this thread (http://www.itulip.com/forums/showthread.php?t=4304) krakknisse referenced the work of Antal Fekete and Lukester mentioned a guy at silveraxis, who focus on the gold and silver "basis", which if I understand correctly is the ratio between the current spot price and the nearest futures price. I'm recalling from memory here and paraphrasing, but basically Fekete says that large bullion holders, possibly including central banks, use the basis as a guide to buying and selling... if not actual bullion, then futures contracts.

So I suppose that times when the two metals prices do not move in synch could be when their basis ratios are not in synch. As to underlying possible reasons for this, I really have no idea.

[Chris]

Funds is certainly part of the answer. I gleam this useful nugget from another forum discussing today's $25 drop in gold:

Talk of forced liquidation in gold helping the dollar (http://www.reutersfxhub.com/fxhub/blog-detail.jsf?title=talk_of_forced_liquidation_in)

Dealers note talk that forced liquidation is underway in the gold market with a hedge fund supposedly being sold out on a margin call. The metal is down $22.50 at $881. Oil has turned down in sympathy. EUR/USD fell into the mid 1.5470s but so far is hanging onto important support around 1.5460/65. Large stops are rumored below that level.

Update: Sources attribute rising margin requirements in energy futures are responsible for the sell-off in gold. They are selling gold to meet fresh requirements in oil, in all likelihood.

[GRG55]

Funds is certainly part of the answer. I gleam this useful nugget from another forum discussing today's $25 drop in gold:

Update: Sources attribute rising margin requirements in energy futures are responsible for the sell-off in gold. They are selling gold to meet fresh requirements in oil, in all likelihood.


Okay. Today gold up $5.00 and oil up $35.00. What do the bright shining stars in the financial press think about that? Here's a sampling after the close from the compulsive journalists that just cannot go to sleep at night without feeling they have explained the world to their fellow citizens...

(Bloomberg) "...Russia's oil funds may invest in gold..."

(Bloomberg) "... Oil, gold and copper climbed today as the dollar dropped because the Federal Reserve gave no signal of higher interest rates yesterday. ..."

(Bloomberg) "...Oil, gold and copper gained as a weaker dollar increased demand for commodities as a hedge against inflation..."

(Reuters) "Gold ended nearly 4 percent higher on Thursday with funds pouring into commodities as a tumbling stock market amid oil's surge to a new record high boosted bullion's appeal as an alternative investment..."

(Reuters) "...Oil, the other main external driver of the gold price, surged 4 percent to a record $140.39 a barrel..."



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