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Measures of Value – Precious Metals Supply and Demand

Summary:
Aiming for Knowledge and Better Decision-Making The price of yellow metal went up nine bucks last week. And the price of silver three rose cents, which is back to where it was two weeks earlier. We need to rant, and promise to tie it back to the prices of the metals. We have written these past several weeks about the fact that the franc has been rendered useless. Owning a franc does nothing for you, other than to trade to the next person at hopefully a higher price. When the money of the realm becomes literally useless as money – the charts and data example above shows excerpts of what happened in Germany from WW1 to the hyperinflation blow-out of 1923. In the end, one simply could no longer use the Reichsmark as a medium of exchange.

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Aiming for Knowledge and Better Decision-Making

The price of yellow metal went up nine bucks last week. And the price of silver three rose cents, which is back to where it was two weeks earlier. We need to rant, and promise to tie it back to the prices of the metals. We have written these past several weeks about the fact that the franc has been rendered useless. Owning a franc does nothing for you, other than to trade to the next person at hopefully a higher price.

When the money of the realm becomes literally useless as money – the charts and data example above shows excerpts of what happened in Germany from WW1 to the hyperinflation blow-out of 1923. In the end, one simply could no longer use the Reichsmark as a medium of exchange. [PT]

This is the state into which gold has been forced, by a series of actions by the US and other governments.

Indeed, so useless has gold become, that we measure its value in terms of the irredeemable fiat dollar. We all love to hate the dollar, we all think the dollar will collapse at some point in the future. Yet so ubiquitous — and useful — is it that we measure even money in terms of dollars!

And “we” does not refer to Keynesians and their close cousins the Monetarists. “We” refers to many Monetary Metals clients and prospective clients. Yes, truly, the folks that are keen to earn interest on their money paid in money — gold — ask constantly our opinion on the price of money in terms of irredeemable Fed credit notes!

No magic words do we possess to help them get their heads around this radical new heliocentric / gold-centric paradigm. We can quote JP Morgan’s testimony before Congress, “money is gold, nothing else” until we are blue in the face.

We can draw a conceptual picture of the lighthouse going up from the ship of a sinking deck, or measuring a steel meter stick as 3.2 rubber bands in length. We can make a distinction between investing in gold vs gold investing — betting on the price vs investing gold to make a gold return.

We can bellow from the rooftops that the Fed publishes on its website that it has an Orwellian definition of “price stability”—two percent debasement per annum. Still people persist in measuring gold in terms of dollars. Still they wish for that steel meter stick to grow longer, which means for the rubber bands to contract.

What’s the point of this rant? Here is the point. By 1923, no German thought of the paper mark as money by which to measure the value of anything. By 2009, no Zimbabwean thought of the Zimbabwe dollar as money. By now (we assume) few Venezuelans measure economic value in bolivars.

Our purpose in ranting here, and of much of our writing, is to help people make this realization before the dollar goes the way of the paper mark and bolivar. With knowledge comes power. And better decision-making.

Fundamental Developments

This concludes our rant. Now we will 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.

Measures of Value – 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 slightly this week.

Measures of Value – Precious Metals Supply and DemandGold-silver ratio

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

Measures of Value – Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

The price of gold rose (depicted here as it truly is, a drop in the price of the dollar) and its scarcity (i.e., the co-basis) rose with it. That means there was some buying of physical metal.

The Monetary Metals Gold Fundamental Price rose further, from $1,299 to $1,306.

Now let’s look at silver.

Measures of Value – Precious Metals Supply and DemandSilver basis, co-basis, and the USD priced in grams of silver

Silver also became scarcer, even though its price didn’t rise much.

The Monetary Metals Silver Fundamental Price rose from $15.31 to $15.40.

Charts by acting-man.com, 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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Measures of Value – 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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