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The Chairman’s Curse – Precious Metals Supply and Demand

Summary:
Something Odd is Happening The price of gold went up two bucks, while that of silver fell ten pennies. Something’s odd about how the metals have traded. Back when the market thought that the Fed was tightening, the prices of gold and silver were rising. Silver is now about a buck higher than its Oct-Nov trading range. A timeline of brief bubble trouble followed by bubble restoration via Hedgeye. It starts in early December (upper left corner) when Santa refuses to provide rising stock prices… Collective Wall Street yammering soon ensues and the socialist central planning agency at the center of our so-called market economy is begged to intervene… After consulting its crystal ball, it decides to make a “coo” sound in late December (lower

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Something Odd is Happening

The price of gold went up two bucks, while that of silver fell ten pennies. Something’s odd about how the metals have traded. Back when the market thought that the Fed was tightening, the prices of gold and silver were rising. Silver is now about a buck higher than its Oct-Nov trading range.

A timeline of brief bubble trouble followed by bubble restoration via Hedgeye. It starts in early December (upper left corner) when Santa refuses to provide rising stock prices… Collective Wall Street yammering soon ensues and the socialist central planning agency at the center of our so-called market economy is begged to intervene… After consulting its crystal ball, it decides to make a “coo” sound in late December (lower right corner), and presto – everything is fixed! Oddly enough, gold seemed to like the less accommodative Mr. Powell better. This does actually make sense on one level, but one would normally expect gold to like the prospect of a retreat from a tightening cycle even better. We do have some ideas on that topic, which we plan to discuss in an upcoming Acting Man gold update. [PT]

But no sooner does Fed Chairman Powell say he is “listening” to the market — which is taken as a hint that he will stop tightening, if not ease a bit — than the prices of the metals stop rising.

Contracting money supply à rising prices of gold and silver.

Expanding money supply à softer prices.

That said, the fundamental prices of both metals — a calculation we make every day — has been rising since Nov 26. So far, the listening and talking of Powell has not pushed the fundamentals down.

Though it should be noted that the  fundamental gold price is just recovering to its range from 2017. And the silver fundamental silver price is almost back to prior levels. We will look at these graphs below.

Fundamental Developments – Fundamental Prices Firmer Again

But first, here is the chart of the prices of gold and silver.

The Chairman’s Curse – 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 a bit this week.

The Chairman’s Curse – 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.

The Chairman’s Curse – Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

Keep in mind that this is the February contract, which is under selling pressure as it approaches expiry. Though the gold continuous basis rose a bit too. Here is the graph of the fundamental gold price for 1,400 days.

The Chairman’s Curse – Precious Metals Supply and DemandFundamental gold price according to the Monetary Metals formula vs. market price (yellow line)

The Monetary Metals Gold Fundamental Price rose $23 to $1,344.

Now let’s look at silver.

The Chairman’s Curse – Precious Metals Supply and DemandSilver basis, co-basis and the USD priced in grams of silver

As the price of silver fell a bit, the co-basis (scarcity) rose a bit. The Monetary Metals Silver Fundamental Price rose 9 cents, to $16.00.

Here is a graph of the fundamental silver price.

The Chairman’s Curse – Precious Metals Supply and DemandFundamental silver price vs. market price (light gray line).

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 Chairman’s Curse – 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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