Fundamental Developments

There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30.

Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.

 

Gold and silver prices in USD terms (as of last week Friday) – 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 all but unchanged.

 

In this graph, we show both bid and offer prices for the gold-silver ratio. If you were to sell gold on the bid and buy silver at the ask, that is the lower bid price. Conversely, if you sold silver on the bid and bought gold at the offer, that is the higher offer price.

 

Gold-silver ratio, bid and offer – 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 (Oct contract), this time showing the trend since mid April.

 

October gold basis, co-basis and the USD priced in milligrams of gold – click to enlarge.

 

This is the October contract, which is under selling pressure (pushing basis down and co-basis up). However, there has been a significant drop in the dollar (the mirror image of how most people think of it, a rising gold price). Below is the continuous gold basis chart for comparison.

 

Gold, continuous contract basis and co-basis and the USD priced in milligrams of gold – click to enlarge.

 

There is not much change in the continuous co-basis, as price rises (and as you can see above, the October co-basis rises along with it).

The co-basis of -0.5% for October or -1.3% in continuous contract terms is not exactly screaming shortage. Yet the refusal of the co-basis to drop in the face of all this gold buying is. It feels a bit like a stealth bear market in the dollar (i.e., a stealth bull market in gold).

Our calculated Monetary Metals fundamental gold price was up $22, to $1,379 as of Friday.

 

Gold, fundamental price vs. market price (bid; chart includes Monday’s move) – click to enlarge.

 

Now let’s look at silver.

 

Silver basis and co-basis and the USD priced in grams of silver – click to enlarge.

 

In silver, we see a rising basis and falling co-basis in the December contract (mirrored by the continuous silver basis chart).

Our calculated Monetary Metals fundamental silver price increased $0.25 to $17.89.

 

Silver: fundamental vs. market price (bid) – click to enlarge.

 

© 2017Monetary 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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