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Future Object of Speculation? Precious Metals Supply and Demand

Summary:
Spillage The price of gold dropped , but the price of silver was all but unchanged. Whereas last week we said: “…the consumer goods stockpile stored in Treasury bonds (to extend our half sarcastic, half tongue-in-cheek analogy) increased this week.” The 10-year note takes another peek at the wide spaces below its 50-day moving average. [PT] Last week, it was the opposite. Consumer goods spilled out of the storage tank of Treasury bonds. The interest rate on the 10-year note ended the week at a level not seen since September 20. Those pesky apples and orange and gasoline and rent may have poured into crude oil. Or bitcoin. Not to beat a dead horse, but we hope we have made it clear that assets are not stores of consumer goods, or

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Spillage

The price of gold dropped $16, but the price of silver was all but unchanged. Whereas last week we said:

“…the consumer goods stockpile stored in Treasury bonds (to extend our half sarcastic, half tongue-in-cheek analogy) increased this week.”

The 10-year note takes another peek at the wide spaces below its 50-day moving average. [PT]

Last week, it was the opposite. Consumer goods spilled out of the storage tank of Treasury bonds. The interest rate on the 10-year note ended the week at a level not seen since September 20. Those pesky apples and orange and gasoline and rent may have poured into crude oil. Or bitcoin.

Not to beat a dead horse, but we hope we have made it clear that assets are not stores of consumer goods, or purchasing power.

We also hope to make it clear that a price move higher does not compensate for a prior drop. Or in this case, a price drop of the bond (i.e., rising interest rate) does not compensate for previous price increases (i.e., falling interest rate). It just imposes capital losses on new investors, not necessarily the ones who made the capital gains.

The principal virtue of the unadulterated gold standard is not static prices. That’s neither possible nor desirable. The virtue is stable interest rates, and hence stable asset prices. And hence little opportunity to speculate outside of agricultural commodities which are subject to the weather.

We are far from that today. It is highly likely that in the restless churn of our markets, one price or another will jump higher. Perhaps that will be the price of gold?

Fundamental Developments

Read on for a look at the only true picture of the supply and demand fundamentals. But, first, here is the chart of the prices of gold and silver.

Future Object of Speculation? 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 fell this week.

Future Object of Speculation? 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.

Future Object of Speculation? Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

Uncanny how the scarcity (i.e., the co-basis) rose with the price of the dollar in gold (i.e., the inverse of the price of gold, in dollars). This usually indicates  repositioning by speculators.

In this case, the Monetary Metals Gold Fundamental Price, after falling the first half of the week, firmed up by $24 to $1,464.

Now let’s look at silver.

Future Object of Speculation? Precious Metals Supply and DemandSilver basis, co-basis and the USD priced in grams of silver

In silver, the same thing happened to the co-basis, although the price didn’t move.

And like in gold, the Monetary Metals Silver Fundamental Price rose, 44 cents to $17.25.

© 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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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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