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Retail Holders Sell Their Gold – Precious Metals Supply and Demand

Summary:
A Myriad of Reasons to Buy Gold – But Small Holders are Selling Big moves occurred in the prices of the metals last week, with that of gold up and silver %excerpt%.77. We have now reached a price of gold (if not silver) not seen since 2013, when it was on the way down. What is causing this sudden spike in price and renewed interest in gold? A well-known depiction of investor emotions over a complete market cycle. Interestingly, it appears as though many retail gold holders who held on to their gold through the 2011-2015 bear market are now selling, just as the market has reached what is normally considered to be the “hope” stage. Ironically, this is actually good news from a contrarian perspective. [PT] Well, first the bad news. According

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A Myriad of Reasons to Buy Gold – But Small Holders are Selling

Big moves occurred in the prices of the metals last week, with that of gold up $57 and silver $0.77. We have now reached a price of gold (if not silver) not seen since 2013, when it was on the way down. What is causing this sudden spike in price and renewed interest in gold?

A well-known depiction of investor emotions over a complete market cycle. Interestingly, it appears as though many retail gold holders who held on to their gold through the 2011-2015 bear market are now selling, just as the market has reached what is normally considered to be the “hope” stage. Ironically, this is actually good news from a contrarian perspective. [PT]

Well, first the bad news. According to every retail dealer with whom we have spoken, worldwide, the rising price has generated lots of customer selling. At retail, long-suffering gold holders are taking advantage of the price to unload. Perhaps they’re thinking, “whew! I can finally get out!” We don’t bring this up to blame them, but to point out that retail is a countervailing force. They are certainly not driving the price action.

Those who follow the basis have been seeing that there is not a corresponding rise in the basis, either. When leveraged speculators buy futures, they push up the price of a contract for future delivery relative to spot. This is what the basis spread measures. Or would be measuring, if this price move was the same as all other moves up in the last six years.

Retail Holders Sell Their Gold – Precious Metals Supply and DemandEvidently, we’re not at this stage just yet…  [PT]

I had short debate on Twitter with a well-known goldbug of the subjectivist persuasion. He was conceding that gold has value only because of the same kind of faith as people have in fiat currencies or bitcoin. As regular readers know, we have argued that even fiat currencies are not held up by faith. They are supported by the struggles of debtors. And definitely not gold.

Gold is not held up by faith, neither of the subjectivist what-if-people-stopped-having-faith variety, nor of the “God said” type, which was the only alternative of which he could conceive.

People value gold because there are times when they wish not to be a creditor. When there is no counterparty to whom they wish to lend (yes, to hold a dollar is to be a creditor to the Fed). With possible war with Iran, and trade war with China, now looks to be such a time.

Oh, and adding fuel to the fire, interest on a vast-and-growing pile of bonds is negative. You pay the borrower to use your cash. And at the end, they return less than you lent. Even in the dollar, the rate of interest is now much lower than it had been recently.

Rising credit risk and falling compensation to reward one for taking it? Perhaps these factors explain why there is renewed buying of gold. At least by the smart money.

Why you should buy gold in a nutshell… [PT]

Fundamental Developments

Now let us 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.

Retail Holders Sell Their Gold – 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 turned back down this week.

Retail Holders Sell Their Gold – 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.

Retail Holders Sell Their Gold – Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

Scarcity (i.e., the co-basis) does not seem to want to go down, even with the rising price. For years, we have mentioned this possibility when it has briefly occurred. It has seemed almost more like a hypothetical than reality. And now here we see it: the gold price is being driven by buying of physical metal. So far.

Last week the Monetary Metals Gold Fundamental Price was up $52 to $1,488.

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Now let us look at silver.

Retail Holders Sell Their Gold – Precious Metals Supply and DemandSilver basis, co-basis and the USD priced in grams of silver

Now we see silver following gold’s market action. The fundamental price spiked up over a dollar, to $16.76.

© 2019 Monetary Metals

Charts by capstone real estate, 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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Retail Holders Sell Their Gold – Precious Metals Supply and Demand 
 

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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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