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The Bien Pensants Agree: The World Doesn’t Need Gold – Precious Metals Supply and Demand

Summary:
The Last Thing to be Left Standing – Alas, Not Yet  The price of gold was about unchanged this week, whereas that of silver fell another nine cents. All Serious Right Thinking people agree that the world does not need gold. Indeed our monetary system produces Great Moderations that are totally unlike the incredible volatility of the gold standard era. They wish they could kill all memory of gold as money. Ben Bernanke, the inventor of the “Great Moderation” fairy tale, somehow felt compelled to explain in 2012 “why the world will never see another gold standard”. One day this will probably  turn out to have been an unwise deployment of the word “never” – since is not exactly known for the accuracy of his forecasts, regardless of their

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The Last Thing to be Left Standing – Alas, Not Yet 

The price of gold was about unchanged this week, whereas that of silver fell another nine cents. All Serious Right Thinking people agree that the world does not need gold. Indeed our monetary system produces Great Moderations that are totally unlike the incredible volatility of the gold standard era. They wish they could kill all memory of gold as money.

Ben Bernanke, the inventor of the “Great Moderation” fairy tale, somehow felt compelled to explain in 2012 “why the world will never see another gold standard”. One day this will probably  turn out to have been an unwise deployment of the word “never” – since is not exactly known for the accuracy of his forecasts, regardless of their time horizon. Although he dismissed gold as an unimportant residual of tradition, the very central planning agency he led at the time for some reason does keep quite a bit of gold under lock and key behind a 140 ton steel door, both for itself and similar agencies domiciled abroad. [PT]

They don’t do this by pushing the price down, but by encouraging people to think of gold as a chip in the Fed’s casino. Something you buy because it’s going up. Or short because it’s going down.

Something that is supposed to go up in response to increases in the quantity of what now passes for money (which is the basis for one of notion of a modern gold standard — just have the Fed target the gold price). When it, of course, doesn’t then people lose that much more faith in the metal.

Somewhere, Emperor Palpatine is chuckling with a dry, mirthless laugh. “Good.” Of course Palpatine is malevolent. Those under his spell, who sell their gold never to touch it again (or so they think) are making a mistake.

It is an apodictic certainty that this smirking tyrant hates gold and funds his empire with the printing press. [PT]

As an aside, there is a curious feature of the monetary debate. We cannot think of any other policy debate which has this feature. The would-be revolutionaries accept the same false beliefs as the court philosophers. Take this idea of the so called great moderation.

It wasn’t great except the amount of debt added, with diminishing return. It wasn’t moderate, if you take your eyes off consumer prices (soft) and asset prices (relentlessly rising). It was an epic collapse in interest rates! Some advocates of the gold standard use the great moderation as an argument, claiming that this was due to a Fed policy that kept the gold price within a range.

Which is it? Is the Great Moderation (so called) an argument for the brilliance and wisdom and efficacy of central planning? Or is it an argument for the gold standard? Or is it a hybrid, an argument for central planning based on one?

One way or the other, gold will come back into use as money. Whether it will be the gentle way (which is what Monetary Metals is working to bring about) or whether the hard way, with gold being the only thing left standing after the paper currencies burn down, people will once again realize that money is the most marketable commodity. And the extinguisher of debt. Gold.

That day is coming — but as Aragorn would say “today is not that day.”

Fundamental Developments

Today, let’s look at the only true picture of the supply and demand fundamentals of gold and silver. But, first, here is the chart of the prices of gold and silver.

The Bien Pensants Agree: The World Doesn’t Need Gold – Precious Metals Supply and DemandGold and silver priced in USD

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). It rose to a new record this week.

The Bien Pensants Agree: The World Doesn’t Need Gold – Precious Metals Supply and DemandThe gold-silver ratio: it has risen to a new high last week, which is ominous. As we pointed out previously, due to the fact that apart from its monetary characteristics, silver has far more uses as an industrial metal than gold, this ratio can be seen as akin to a credit spread. When it rises, it indicates that economic confidence is deteriorating. [PT]

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

The Bien Pensants Agree: The World Doesn’t Need Gold – Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

Last week, there was little change in the price, but gold got a bit scarcer in the market (as of the PM fix, when the price was down). However, the Monetary Metals Gold Fundamental Price feel another $17 last week to $1,299.

Now let’s look at silver.

The Bien Pensants Agree: The World Doesn’t Need Gold – Precious Metals Supply and DemandSilver basis, co-basis and the USD priced in grams of silver

In silver, the picture is clearer. The price of silver in dollars (inverse to what is shown, the price of the dollar in silver) fell. But the scarcity of the metal (i.e., the  co-basis, the red line) rose a lot.

So unsurprisingly, the Monetary Metals Silver Fundamental Price rose 20 cents, to $14.93.

Charts by Monetary Metals

Chart and image captions by PT

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.

 

 

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The Bien Pensants Agree: The World Doesn’t Need Gold – Precious Metals Supply and Demand 
 

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Keith Weiner
Keith Weiner is president of the Gold Standard Institute USA in Phoenix, Arizona, and CEO of the precious metals fund manager Monetary Metals. He created DiamondWare, a technology company that he sold to Nortel Networks in 2008. He writes about money, credit and gold. In March 2015 he moved his column from Forbes to SNBCHF.com.

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