One Cannot Trade Based on the Endgame

The prices of the  metals were down again this week, -$15 in gold and more substantially -$0.57 in silver.

Stories continued to circulate this week, hitting even the mainstream media. Apparently gold is going to be priced at $10,000. Jump on the bandwagon now, while it’s still cheap and a bargain at a mere $1,322!


atlas-launch-muos-1920All aboard… or maybe not? It all depends on what one wants to achieve – there’s many a slip ‘twixt the cup and the lip…

Photo credit: National Geographic Channel


Our view is, well, not so fast.

Of course, at the end of the day the irredeemable paper currencies will fail. But we have two thoughts to add to this. By the time the US dollar is failing, it will become obvious to everyone that $10,000 is no riches.

It will be clear even to the Monetarists that this does not mean gold is going up, but that the dollar has gone down over 7X from where it is now (from 23.5 milligrams of gold to 3.1mg).

Of course, our old refrain is that a lot of price action can occur between now and then. If you’re playing the gold market for dollars, you can’t trade based on the endgame.


Fundamental Developments

So let’s look at the only the only true picture of the supply and demand fundamentals for gold and silver. But first, here’s the graph of the metals’ prices.


chart-1-pricesGold and silver prices – 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 rose this week.


chart-2-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 cobasisGold basis and co-basis and the dollar price – click to enlarge.


Last week, we said:


“We have to say that we are skeptical of the large move up in the basis (i.e. abundance) and downward in the cobasis (i.e. scarcity). We want to see the data for this coming week.”


As is clear on the graph, we were right to distrust these spikes. The real move is clear (going forward, we will erase the one day with the bad data so the graph will be easier to read).

The price of the dollar, in gold terms (i.e. inverse of the price of gold, measured in dollars) is rising. With it, gold is becoming less abundant (blue line, i.e. the basis).

The fundamental price is not buying the $10,000 gold story. Not one bit. It is down around $1,140. Now let’s turn to silver.


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


In silver, it’s even worse as we see a falling scarcity (i.e. red line, the cobasis) as the price of silver falls (inverse to the graph, which shows the price of the dollar, measured in silver).

Not counting the anomaly, the silver cobasis fell from -1.66% on Thursday, July 14 to it’s current -1.9%. While the price of the metal fell from $20.28 to $19.62.

The fundamental price is way down, to about $16.


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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2 Responses to “Gold is not Going to $10,000”

  • All-Your-Gold-Are-Mine:

    You are right Mr Wiener…

    Gold is NOT going to $10,000 but much higher!

    I wonder how many dopes said that Gold was NOT going to $1923 (a factor of 7.5x) when it was at $254 a few years before?

    I wonder how many dopes said that the DOW was not going to 18,600 when it was at 64 in the early 20s (a factor of 290+)?

    A factor of 290+ would make shackled Gold that settled around $100 since being set free to trade in 1971, at least $100 x 290 = US$29,000 / oz… Imagine that… something considered ar REAL money compared with a paper asset such as one gets in the ownership of a stock in the DJIA!

    Dopes are all around us… they can’t see the forest for the trees. lol

  • Kreditanstalt:

    What would be the price of THE METAL in paper dollars if the fraudulent manipulation mechanisms – futures, options, swaps, ETFs – were removed from the picture?

    You continue to confuse unbacked paper derivative bets on “price” in dollars with demand for ownership of bullion.

    “Well, this is reality,” you say? Yes, it is unfortunately the reality for anyone today who exchanges paper money for “gold” (real or not) and expects to get MORE paper money in future “profits”…

    But this discounts both possible exogenous and possible traumatic macroeconomic events. And the human reactions to them.

    When some of those events DO come to pass (and, as you say, paper currencies are doomed), only the metal will count. Better get ready now, with the LONG view in mind, while ignoring “the gold price” altogether.

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