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Central Banker Angst – Precious Metals Supply and Demand

Summary:
Ominous Pronouncements The prices of the metals barely budged last week. It is interesting to note that last week, more than one central banker felt it necessary to say something about a possible next crisis. And at least one of them said something about gold. Lost as always, and apparently slightly nervous these days… [PT] We do not place much stock in what these guys say for obvious reasons. Like Elmer Fudd armed with a gun that couldn’t quite hit any target, central bankers are armed with a theory that couldn’t quite explain an economy. However, there are certain things they can see — sometimes ahead of most others. One is the stress on the banks. The Swiss Bankers Association says that negative rates are costing them billion a

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Ominous Pronouncements

The prices of the metals barely budged last week. It is interesting to note that last week, more than one central banker felt it necessary to say something about a possible next crisis. And at least one of them said something about gold.

Central Banker Angst – Precious Metals Supply and DemandLost as always, and apparently slightly nervous these days… [PT]

We do not place much stock in what these guys say for obvious reasons. Like Elmer Fudd armed with a gun that couldn’t quite hit any target, central bankers are armed with a theory that couldn’t quite explain an economy.

However, there are certain things they can see — sometimes ahead of most others. One is the stress on the banks. The Swiss Bankers Association says that negative rates are costing them $2 billion a year. Two billion here, two billion there, and pretty soon it adds up.

The banks want an end to negative rates, but as we have written at great length, this is impossible. So right now, they are facing a drain on their capital of two billion a year. The banks are trying to catch up by charging their clients even more negative rates.

This could cause a run on the banks, if depositors withdraw paper bank notes (which have an interest rate of zero). Just like in our discussion of the repo market intervention, each policy imposed by the central banks has consequences that make them impose the next policy. We said:

“An image that comes to mind is a mad ocean monster, like a Kraken. It is blasting a sea dike with many high-pressure hoses. This causes leaks, but the Kraken keeps plugging them with more and more tentacles.”

Central Banker Angst – Precious Metals Supply and DemandMeet the Kraken, rising from the murky GOSPLAN depths…  [PT]

We eagerly await (not really, just a figure of speech) the next policy response of the Swiss National Bank and other central banks. Especially if these rumblings of the next crisis are real. As students of the gold basis, we expect to see an early warning.

Fundamental Developments

Read on for a look at that early warning system. But, first, here is the chart of the prices of gold and silver.

Central Banker Angst – 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).

Central Banker Angst – Precious Metals Supply and DemandGold-silver ratio, bid and offer

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

Central Banker Angst – Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

The co-basis increased again, with no drop in price. Gold is just that smidgen scarcer that it was in the previous week. Though we must emphasize this is far from the level we would expect in a crisis.

The Monetary Metals Gold Fundamental Price, was up another $19 this week, to $1,483.

Now let us look at silver.

Central Banker Angst – Precious Metals Supply and DemandSilver basis, co-basis and the USD priced in grams of silver

In silver, the same thing happened to the (December) co-basis, though not the silver basis continuous.

The Monetary Metals Silver Fundamental Price fell 30 cents to $16.95.

© 2019 Monetary Metals

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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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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