Precious Metals Surge

The price of gold bumped up thirty bucks, and that of silver about one buck. Is this liftoff — when the dollar falls sharply, and the price of each metal in dollar terms skyrockets?

 

the-lord-of-the-rings-sarumanSilver gets the Saruman question…(see further below)

Photo credit: New Line Cinema

 

Is this the denoument when the gold bug does not get rich, because although his net worth measured in dollar is massively up, the dollar is down in equal measure?

It’s complicated.

But we doubt it. Perhaps a labor report will come out, or news of a government doing something even more insane than irredeemable paper currency (such as giving the power to outright print currency to the legislature) will cause a rush to gold hoarding.

 

Fundamental Developments

In the meantime, read on for the only true picture of the supply and demand fundamentals. But first, here’s the graph of the metals’ prices.

 

chart-1-pricesPrices of gold and silver – click to enlarge.

 

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio was down about two and a half points.

 

chart-2-gold-silver-ratioGold-silver ratio – click to enlarge.

 

For each metal, we will look at a graph of the basis and co-basis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and co-basis in red.

 

Here is the gold graph.

 

chart-3-gold-basis and co-basisGold basis and co-basis and the dollar price

 

The price of the dollar is down (i.e. the price of gold is up). Along with it, the abundance of gold (blue line) is up. More gold is available at the higher price.

But not quite proportionally. Our calculated fundamental price is up $11. It’s now about ninety bucks below the market. We would never recommend to anyone to naked short a monetary metal (see the above for the kind of insanity that could cause a big spike in the price).

However, we would not be buyers when gold is selling at such a premium. At least not for a trade — for those who don’t have any, we would always recommend getting some regardless of price.

Note that little changed from last week. The price blipped up, but it was primarily speculators buying.

Now let’s turn to silver.

 

chart-4-silver basis and co-basisSilver basis and co-basis and the dollar price – click to enlarge.

 

In silver, the price of the dollar is down sharply and silver became slightly more scarce. Note that we have switched from following the July to following the September contract, as July has become too volatile.

We regard the co-basis to be bouncing along at the bottom. Yes, it is higher than it was last week, and yes the price of silver is up sharply, and yes the fundamental price is up from last week. It is still about two bucks below the market.

Two bucks is a premium of almost 11.5% to its fundamental price.

For now, it seems trading momentum favors silver. “And if that fails, where then will you go, silver?” (paraphrasing Saruman addressing Gandalf in Lord of the Rings).

 

Charts by: Monetary Metals

 

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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3 Responses to “Where Then Will Silver Go?”

  • therooster:

    “Is this the denoument when the gold bug does not get rich, because although his net worth measured in dollar is massively up, the dollar is down in equal measure?”

    It’s not about individual wealth , but systemic wealth that we all benefit from.

    On the basis of the above, the whole world can become fruitful by shifting toward the circulation of bullion in order to :

    a) Support trade and the economy with debt-free currency.
    b) allow the added liquidity from that same debt free currency to purge existing debt.

    The hybrid of liquidity can now take on the organic characteristics of working toward a yin-yang of liquidity through market osmosis. Everybody wins.

    Get it right. Our survival depends on it

    The analysis simply looks upon gold as a circulating curency rather than its econmically useless rols as an investment or store of value.

    • All-Your-Gold-Are-Mine:

      Good points… as well, it still seems that buying physical gold and buying paper-gold contracts are two entirely different things. Because there is so little physical gold at current paper-gold price, it seems that such current premiums for both gold and silver are easily justified. Yes, I know that paper-gold contracts can be settled in cash, but again, if that ever occurred, I’m certain that the price of physical gold would quickly head much higher. Not sure how one would value physical gold based on such a paper-default scenario. It seems that premiums for physical gold would soar.

      • rowingboat:

        Have you quantified the net physical flow of gold bullion through Switzerland to the East in 2016 (China, HK, India, Singapore, Saudi Arabia, UAE etc)? All it took was a higher gold price in Q1 for this formerly substantial flow to the East to stop and reverse (February to April) as the West started hoarding again.

        There is plenty of physical available at today’s price, which is Keith’s point. Note also that his cobasis started to plummet in February just when the overall net flow of bullion to the East started its collapse. Switzerland’s trade data for May becomes available next week, so let’s see if there has been a change of trend. Keith’s analysis would suggest not… yet.

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