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A Force Impelling People to Buy – Precious Metals Supply and Demand

Summary:
Intense Price Action The price action was pretty intense last week, most of it on Friday. The statement by President Trump, not to mention Fed Chairman Powell’s hint of further rate cuts, impelled people to buy gold and silver, whose prices went up and %excerpt%.29. 10-year treasury note yield – plumbing new lows for the move… [PT] Oh, and the interest rate on the 10-year Treasury lost over 5% of its juice on Friday. We said last week: “…[there is] no magic interest rate, that drives up the gold price. What we need is a spread, or a ratio. We should compare the market interest rate to marginal time preference.” Did marginal time preference drop this week? We don’t know, but we doubt it. If not, then the drop in interest rates compresses

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Intense Price Action

The price action was pretty intense last week, most of it on Friday. The statement by President Trump, not to mention Fed Chairman Powell’s hint of further rate cuts, impelled people to buy gold and silver, whose prices went up $14 and $0.29.

10-year treasury note yield – plumbing new lows for the move… [PT]

Oh, and the interest rate on the 10-year Treasury lost over 5% of its juice on Friday. We said last week:

“…[there is] no magic interest rate, that drives up the gold price. What we need is a spread, or a ratio. We should compare the market interest rate to marginal time preference.”

Did marginal time preference drop this week? We don’t know, but we doubt it. If not, then the drop in interest rates compresses that interest rate-time preference spread. Or pushes deeper into negative territory.

That is a force which impels people to buy gold. And with silver still near a historic low compared to gold, the savvier ones are buying silver. Thus the gold-silver ratio is slowly declining.

Fundamental Developments

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

A Force Impelling People to Buy – 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). The ratio dropped this week.

A Force Impelling People to Buy – Precious Metals Supply and DemandGold-silver ratio, bid and offer

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

A Force Impelling People to Buy – Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

A big drop in the dollar (priced in gold, the inverse of the price of gold in dollars) and the scarcity (i.e., the co-basis) is basically unchanged. This is almost incredible to watch. All that time, when there were many false price breakouts (trumpeted as real price breakouts at the time by the usual suspects), we said “look at rising price with falling scarcity and rising abundance.”

We said when it’s real, there will be a rising price with rising scarcity (as we have had) or at least flat scarcity. It almost seemed an act of faith at the time — but now it is happening.

This week, the Monetary Metals Gold Fundamental Price went up an additional $27, to $1,543.

Now let us look at silver.

A Force Impelling People to Buy – Precious Metals Supply and DemandSilver basis, co-basis and the USD priced in grams of silver

Is the co-basis rolling over? There is a bit of a drop this week, but it is just back to where it was two weeks ago when the price of the dollar was 1.826 grams of silver. Now it is at 1.786, or 2.2% lower. The key question is whether silver becomes more and more abundant as its price rises, or whether it holds here.

The fundamental price moved up a bit, to $17.04. Note that the market price of silver is above the fundamental price, but not in gold.

© 2019 Monetary Metals

Charts by stockcharts, 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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A Force Impelling People to Buy – 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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