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Resistance Created by Long-Suffering “Hodlers” – Precious Metals Supply and Demand

Summary:
Gold vs Other Assets The prices of the metals went up + and +%excerpt%.23. We will be brief this week, as Keith just got off a 17-hour flight from Perth to London. Stocks continue their march upwards. And hence the gold price seems stalled—or is it? It may seem like gold goes up, when stocks go down and vice versa. That’s been the recent pattern. Why should people own money without return, when stocks are where the action is? Gold-SPX ratio: in long-term gold bull markets, this ratio will trend higher. It has recently made a secondary, higher low, but not yet a higher high – which will be required to confirm a new bull market trend. In the short term, gold and stocks can be positively correlated, but in the long term they are antagonists (a

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Gold vs Other Assets

The prices of the metals went up +$15 and +$0.23. We will be brief this week, as Keith just got off a 17-hour flight from Perth to London.

Stocks continue their march upwards. And hence the gold price seems stalled—or is it? It may seem like gold goes up, when stocks go down and vice versa. That’s been the recent pattern. Why should people own money without return, when stocks are where the action is?

Gold-SPX ratio: in long-term gold bull markets, this ratio will trend higher. It has recently made a secondary, higher low, but not yet a higher high – which will be required to confirm a new bull market trend. In the short term, gold and stocks can be positively correlated, but in the long term they are antagonists (a rising gold price denotes rising demand for money, which usually coincides with falling demand for “risk assets” such as stocks). [PT]

But actually, we have done some research recently. And put together a white paper, to look at what gold does for a dollar-denominated portfolio. We replicate the same research that many others have done before: it reduces volatility and drawdowns, and improves the Sharpe Ratio (we also add analysis of what a yield on gold does—surprise, it enhances overall returns).

Anyway, the point being that gold is not particularly correlated to stocks or bonds.

There is a tension between stocks are where the action is … vs … stocks are risky here. Between falling interest and rising assets … vs … if they don’t offer much interest, it’s better to own money with no risk.

Is now the turning of the trend? The price action sort of suggests it. But anecdotally, talking to several dealers, we hear that retail owners of coins and small bars have been taking advantage of the now-higher prices to dump their gold, to get out. Indeed we see bids on 1oz gold Eagles below spot price.

This is what chartists call “resistance”. Long-suffering holders (HODLers?) waited for their opportunity to exit a speculation that was long underwater and now hated. It is hard for the price to go higher, until that wave of selling abates. Some of them have been suffering a long time, as the price of gold peaked eight years ago, in 2011.

The prices of the metals fell last week, with that of gold -$9 and silver -$0.32. Of course, it was a week of stock market exuberance. Why would anyone want to own money, or seek safety when the Fed can seemingly push interest down / assets up indefinitely? As the old TV ad for Lotto proclaimed “you gotta be in it, to win it!”

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.

Resistance Created by Long-Suffering “Hodlers” – 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 back a bit.

Resistance Created by Long-Suffering “Hodlers” – 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.

Resistance Created by Long-Suffering “Hodlers” – Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

Take this chart with a grain of salt, as the August contract is close to First Notice Day. Scarcity (i.e., the co-basis) looks strong, but it’s an artifact.

The Monetary Metals Gold Fundamental Price fell another $12 to $1,407.

Now let’s look at silver.

Resistance Created by Long-Suffering “Hodlers” – Precious Metals Supply and DemandSilver basis, co-basis and the USD priced in grams of silver

With silver, we see same pattern. Except this contract is not so close to expiry. The Monetary Metals Silver Fundamental Price went up 8 cents to $15.52.

© 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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Resistance Created by Long-Suffering “Hodlers” – 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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