Silver Price Driven by Reservation Demand The price of gold went up a buck last week, but the price of silver dropped back 13 cents. And the gold-silver ratio marches further upwards. Keith spoke at a conference this week, about how to analyze the fundamentals of supply and demand in gold and silver. He talked about the basis of course. Silver coins – silver prices are partly influenced by an industrial demand component, but the fact that they move most of the time with the price of gold indicates that the main price driver remains reservation demand by investors. [PT] Another speaker spoke later, about the supply and demand fundamentals of silver. He covered all the topics we eschew — solar, increasing use of sensors and electronics
Keith Weiner considers the following as important: Chart Update, Precious Metals
This could be interesting, too:
Keith Weiner writes A Wild Week – Precious Metals Supply and Demand
M. G. writes Suffering the Profanity of Plentiful Cheap Money
Keith Weiner writes The Great Debasement – Precious Metals Supply and Demand
Keith Weiner writes A Force Impelling People to Buy – Precious Metals Supply and Demand
Silver Price Driven by Reservation Demand
The price of gold went up a buck last week, but the price of silver dropped back 13 cents. And the gold-silver ratio marches further upwards.
Keith spoke at a conference this week, about how to analyze the fundamentals of supply and demand in gold and silver. He talked about the basis of course.
Silver coins – silver prices are partly influenced by an industrial demand component, but the fact that they move most of the time with the price of gold indicates that the main price driver remains reservation demand by investors. [PT]
Another speaker spoke later, about the supply and demand fundamentals of silver. He covered all the topics we eschew — solar, increasing use of sensors and electronics in automobiles, etc. And at the end of his presentation, he had two graphs.
Without the ability to reproduce them here, we will just summarize them. One showed the correlation of silver to gold, copper, and oil. It showed a very noticeable correlation to gold, and not so much copper, and virtually none with oil.
The second chart showed, for each trading day over a period of time, a gold colored up-bar if silver traded with gold, or a gray down-bar if it traded with other commodities. By eye, it looked like over 99% of days, silver was with gold.
In other words, you can safely ignore all the talk about industrial uses of silver. And mine production. And recycling. Demand for silver, as with gold, is monetary reservation demand. Silver is still money (whew, right?!).
So why a ratio over 90:1? Those who demand gold for monetary reserve are a different group than those who demand silver. As always, gold is owned by those rich enough to afford it. An ounce of gold is several weeks of the wages of an unskilled laborer, or more than a week of the wages of the median worker in the US. And more than that outside America.
Institutions, including central banks, demand gold almost exclusively, with little silver other than perhaps family offices and hedge funds that may have a broader charter.
A 90:1 ratio tells us that the wage-earners who cannot afford gold are either not able or not willing to increase their monetary reservation demand. At least this is true relative to risk asset owners (who are near peak levels of equity after so many years of bull markets).
For a $20 silver price (and 75:1 ratio, assuming gold is priced at $1,500), look not to a great increase in consumer electronics or industrial demand. Look to a shift in either the mindset or capacity to buy silver among wage-earners. And maybe a shift in sentiment among wealthier savers who have the option of using silver — and who may be attracted to the relative bargain.
However, from the look of that chart we have been updated (see below, under silver) that today is not that day.
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.
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 rose further.
Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.
The dollar was basically unchanged. Gold scarcity (i.e., the co-basis) dropped a hair.
The Monetary Metals Gold Fundamental Price dropped slightly to $1,402. It’s a bit above market, but not a lot.
Now let’s look at silver.
The July silver contract approaches expiry, and it is no surprise that it has tipped back into backwardation, with a sharp increase in the co-basis. However, the silver basis continuous shows a slight drop in scarcity.
The Monetary Metals Silver Fundamental Price dropped back to $15.49.
Here is an update of the ratios of the gold to silver basis and co-basis.
There is a move favoring silver (i.e. silver being the scarcer metal in current market conditions), but this week it was a small one.
© 2019 Monetary Metals Monetary Metals is excited to be bringing the first gold bond to market. Please contact us if you are interested in investing.
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.
Emigrate While You Can... Learn More
You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.
Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA