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Eating the Seed Corn – Precious Metals Supply and Demand

Summary:
Misguided Incentives The price of gold subsided a few bucks, and the price of silver blipped a few pennies. Not much action last week, groceries neither pumped into nor drained out of this asset class. Those who look to exchange capital goods for groceries need to find a different asset. The best-laid plans… [PT] Not even the S&P 500 Index provided a gain in groceries this week. It certainly wasn’t the much-vaunted store of groceries, Bitcoin, which leaked 12 of them last week. 10-year treasuries picked up some purchasing power, but not a lot. Maybe President Trump can order the Fed to fire up its tried and true grocery printing machine. If not, how can the strong economy stay strong? How can GDP keep growing, if the incentive to

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Misguided Incentives

The price of gold subsided a few bucks, and the price of silver blipped a few pennies. Not much action last week, groceries neither pumped into nor drained out of this asset class. Those who look to exchange capital goods for groceries need to find a different asset.

The best-laid plans… [PT]

Not even the S&P 500 Index provided a gain in groceries this week. It certainly wasn’t the much-vaunted store of groceries, Bitcoin, which leaked 12 of them last week. 10-year treasuries picked up some purchasing power, but not a lot.

Maybe President Trump can order the Fed to fire up its tried and true grocery printing machine. If not, how can the strong economy stay strong? How can GDP keep growing, if the incentive to convert capital to income, to consume, is withdrawn?

Speaking about eating the seed corn, we came across this post on Facebook. It is quite poignant:

“7 years ago, a glass bottle with millet was accidentally found in the village of Velyki Krushlyntsi in Vinnytsia oblast, Ukraine. The bottle had been buried under the root of aspen by Semen Poberezhnyak in 1932, when the Soviet commissars nationalized Ukrainian villages all that was edible. In spring, he had wanted to sow this millet to save his family from starvation. Alas, he could not find the tree he had dug the bottle under, from among the other trees. To the end of his days he was sorry he did not put a mark on the tree. He could not forgive himself that his daughter Justine and her three children – two girls and a boy – died of starvation then. His great-grandson found the bottle in November 2012.”

Eating the Seed Corn – Precious Metals Supply and DemandUkraine, 1933: malnourished children scrabbling for potatoes in a frozen field… Stalin’s collectivization policy triggered a terrible famine that killed millions of Ukrainians. This may explain  why people in the country were so eager to pull down statues of former Soviet leaders a few years ago. [PT]

The Ukrainians suffered the consequences of the Soviets eating their seed corn. We fear that people in the West will once again learn the consequence of eating their seed corn. But right now they cheer a rising GDP, heedless that the Fed’s trick is to fuel it with seed corn.

Eating the Seed Corn – Precious Metals Supply and DemandFinally found: grandpa’s bottle with seeds – 80 years too late. [PT]

Fundamental Developments

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

Eating the Seed Corn – 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 last week.

Eating the Seed Corn – 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. It rose this week.

Eating the Seed Corn – Precious Metals Supply and DemandGold basis, co-basis and the USD priced in milligrams of gold

There was a slight drop in scarcity (i.e., the co-basis) along with the rise in the price of the dollar (i.e., the drop in the price of gold, measured in dollars). Note that this close to the December contract expiry, we have shifted to the February 2020 contract (and to the March contract for silver).

The Monetary Metals Gold Fundamental Price, was down another $8 this week, to $1,457

Now let us look at silver.

Eating the Seed Corn – Precious Metals Supply and DemandSilver basis, co-basis and the USD priced in grams of silver

In silver, scarcity is falling, and abundance is rising. The Monetary Metals Silver Fundamental Price fell by another 19 cents, to $16.13.

© 2019 Monetary Metals

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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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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