Regulated to Death

The price of gold fell $13, and that of silver $0.23. Perspective: if you’re waiting for the right moment to buy, the market now offers you a better than it did last week. If you wanted to sell, this wasn’t a good week to wait. Which is your intention, and why?

 

We are rather late posting Keith’s supply & demand update this week, so we felt we might as well add an updated chart of the divergences we recently discussed. This week gold has dropped quite a bit further, but the bullish divergences between gold and gold equities have stubbornly persisted. Such market behavior is virtually always meaningful (at least we cannot remember the last time when it hasn’t been). [PT]

 

Obviously, last week the sellers were more aggressive, and the buyers more leisurely. Even the so-called digital gold, bitcoin, fell about 6% last week. It seems those struggling debtors are not only selling the wheat and burgers they produce. They are selling financial assets they hold.

Soybeans dropped 20% in June and the first half of July. Wheat fell only 8% since late May, but has been in an epic falling trend since 2012, having lost 45%. And that wheat price in 2012 was about a third down from the peak of 2008. Soybeans by the way are down over 50% from their peak in 2012. Oil, as much as it has come up in the last two years, is still down 34% from its 2014 peak.

We have to bite our tongues every time someone says “inflation”, with or without breathlessness. Wheat is down from $13 a bushel to under $5 since 2008 (with rising money supply). People insist with respect to inflation that “the government is lying to us about the consumer price index.” We don’t know that CPI is a lie, but we do know that the price of wheat is real.

 

As a weekly continuation chart of wheat futures reveals, wheat has indeed seen far better times – at the height of the commodities craze that flamed out in 2007-2008 it briefly surged to previously unheard of levels near $13.50 per bushel. However, it has also seen worse times in the more distant past. Nearly all commodity prices are in fact trading far above their nominal lows of the 1990s. The CRB Index is misleading, as it reflects the roll-over effect. While the CRB index does reflect how much money one would actually have made or lost by continually rolling over commodity futures – i.e., it shows the absolute return of a nonsensical “buy and hold” strategy – (when futures are trading in contango, losses soon begin to pile up), it also creates the false impression that nominal commodity prices have generally fallen to new multi-decade lows, which is simply not the case. [PT]

 

If the spread between retail bread and the commodity wheat has widened, blame taxes and regulations. The effects of monetary policy will be seen most clearly in commodity markets. And least clearly seen where the impact of government is greater. State, county, and city governments all get their pound of flesh. They have permitting, licensing, zoning, labor law, restricted loading hours (with mandatory time and a half).

Retail stores lose more and more productive floor space due to regulations like the Americans with Disabilities Act. Lawsuits drive up insurance costs. And rising “user fees” charged by desperate municipalities, for permission to be in business. California makes gasoline more expensive by mandating changes to the blend. And now, tariffs will spike some prices. The price of soybeans has dropped due to tariffs.

Contra Milton Friedman, who said “inflation is everywhere and always a monetary phenomenon”,  prices often rise due to non-monetary factors. Of course, if the price of a double latte doubles due to a double dose of regulation and taxation, that is not a driver for the price of gold to go up. The price of gold does not track this kind of inflation.

 

Milton Friedman wags his inflation warning finger. The purchasing power of money is driven by four forces: the supply of and demand for money; and the supply of and demand for goods and services money can buy. Moreover, due to the heterogeneous nature of the latter, goods and service-specific price trends often buck general trends related to money supply and demand. However, this does not mean that one can just dismiss growth in the money supply as unimportant. First of all, if it grows, prices for everything will be higher than they would have been if it had remained stable. Second, it is through manipulation of the money supply that monetary authorities manipulate administered interest rates, thereby sending falsified signals to the marketplace about the state of the economy’s pool of real savings. This creates the boom-bust cycle by promoting distortions in relative prices in the economy, which invariably invites capital malinvestment and capital consumption. Friedman’s highly aggregated monetarist view does of course not take any of these factors into account – it is an analysis that must perforce remain very superficial. As it happens, a good rule of thumb in economics is “superficial is almost always wrong”. [PT]

Photo via mises.ca

 

Fundamental Developments

Whither the price of gold next? We will provide a picture of the changing gold and silver fundamentals. But first, here is the chart of the prices of gold and silver.

 

Gold 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). It went up this week.

 

Gold-silver ratio: when it rises it often indicates declining economic confidence, similar to rising credit spreads. This is due to the large industrial demand component in silver. [PT]

 

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

 

Gold basis, co-basis and the USD priced in milligrams of gold

 

Once again scarcity (i.e., the co-basis) was rising along with price of the dollar (the inverse of the price of gold, measured in dollars). It is times like this when you want a picture of the fundamentals. It is easy to think that demand for gold is going down. But is it?

Not last week. The Monetary Metals Gold Fundamental Price remained at $1,300 (well, $1299 to be precise).

 

Now let’s look at silver.

 

Silver basis, co-basis and the USD priced in grams of silver

 

The same thing happened in silver, a rising co-basis, with a drop in price. The Monetary Metals Silver Fundamental Price rose 4 cents, to $17.48.

So in both metals, most people would say that we had a bad week. However, a look at the fundamentals shows it wasn’t as bad as the people with only price charts think.

 

© 2018 Monetary Metals

 

Keith is going to be at the Sprott Natural Resources Symposium this week in Vancouver. Please contact us if you want to meet. Sprott gave us a discount code for $100 off the registration: MDA2018.

 

Charts by: StockCharts, 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

 


 

 
 

Dear Readers!

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

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Gold Debate – Where Do Things Stand in the Gold Market?
      A Recurring Pattern When the gold price recently spiked up to approach the resistance area even Aunt Hilda, Freddy the town drunk, and his blind dog know about by now, a recurring pattern played out. The move toward resistance fanned excitement among gold bugs (which was conspicuously lacking previously). This proved immediately self-defeating - prices pulled back right away, as they have done almost every time when the slightest bit of enthusiasm emerged in the sector in recent...
  • Monetary U-Turn: When Will the Fed Start Easing Again? Incrementum Advisory Board Meeting Q1 2019
      Special Guest Trey Reik and Board Member Jim Rickards Discuss Fed Policy On occasion of its Q1 meeting in late January, the Incrementum Advisory Board was joined by special guest Trey Reik, the lead portfolio manager of the Sprott Institutional Gold & Precious Metal Strategy at Sprott USA since 2015 [ed note: as always, a PDF of the complete transcript can be downloaded further below].   Trey Reik of Sprott USA.   Also at the meeting, Jim Rickards, who is inter...
  • Acting Man Returns - A Brief Housekeeping Note
      Pater Temporarily Keels Over Regular readers have no doubt noticed that the blog has fallen silent for around three weeks and may be wondering what has happened. In a nutshell, we were hospitalized. After a lengthy time period during which our health gradually but steadily deteriorated (we have complained about this previously), we finally keeled over. Thereupon we were forced to entrust the ruin that houses our mind to an experienced team of doctors (depicted below).   A...
  • Watch Europe - Free Pass for the Elliott Wave European Financial Forecast
      Europe at an Important Juncture European economic fundamentals have deteriorated rather noticeably over the past year - essentially ever since the German DAX Index topped out in January 2018. Now, European stock markets have reached an important juncture from a technical perspective. Consider the charts of the Euro-Stoxx 50 Index and the DAX shown below:   The Euro-Stoxx 50 Index already peaked in early November 2017, the DAX followed suit in January 2018 – such divergent peaks...
  • Why Warren Buffett Should Buy Gold
      Riding the Tailwinds of Fiat Money Inflation to Fame and Fortune Warren Buffett bought his first shares of stock when he was 11 years old.  He saved up $114.75 and “went all in,” purchasing three shares of Cities Service preferred stock.  The day was March 11, 1942 – nearly 77 years ago.  Buffett recently reminisced about this purchase in his annual letter to shareholders:   “I had become a capitalist, and it felt good.”   The Oracle of Omaha – he was...
  • Fake Money’s Face Value Deceit
      Not the Brightest Tool in the Shed Shane Anthony Mele stumbled off the straight and narrow path many years ago.  One bad decision here.  Another there.  And he was neck deep in the smelly stuff. These missteps compounded over the years and also magnified his natural shortcomings.  Namely, that he’s a thief and – to be polite – a moron.   Over-educated he ain't: Shane Anthony Mele, whose expressive mug was captured by a Florida police photographer first in...
  • Rise of the Zombies - Precious Metals Supply and Demand
      Rise of the Zombies - Precious Metals Supply and Demand Last week, the prices of gold and silver fell $35 and ¢70, respectively. But what does that mean (other than woe unto anyone who owned silver futures with leverage)? The S&P 500 index and the euro was up a bit, though the yuan was flat and copper was down. Most notably, the spread between Treasury and junk yields fell. If the central banks can lower the risk of default premium, they can make everything unicorns and...
  • Bitcoin Bottom Building
      Defending 3,800 and a Swing Trade Play For one week, bulls have been defending the 3,800 USD value area with success. But on March 4th they had to give way to the constant pressure. Prices fell quickly to the 3,700 USD level. These extended times of range bound trading are typical for Bitcoin Bottom Building in sideways ranges. This 60 minute chart of Bitcoin shows (represented by the yellow candlestick wicks) how the bulls defended 3,800 USD :   BTCUSDT 60 minute chart...
  • The Magic Doesn't Always Work - Precious Metals Supply and Demand
      The Week Ends with a Surprise The weekly closing prices of the precious metals were up +$5 and +¢11. But this does not tell the full story of the trading action. Prices were dropping until Friday. More precisely, Friday 8am in New York, or 1pm in London.   Gold and silver - back in demand on Friday... [PT]   At that moment, a light cabal conspiring to jack the price struck traders began buying. The end result was the prices, especially of silver, rose on the day...
  • Intraweek Profit Opportunities
      In 6 of 10 Countries a Single Day Outperforms the Entire Week! In the Seasonal Insights issue of 13 February 2019 I presented a study illustrating the power of intraweek effects. The article was entitled “S&P 500 Index: A Single Day Beats the Entire Week!” The result of the study: if one had been invested exclusively during a single day of the week since 2000  – namely on Tuesday – one would have outperformed a buy and hold strategy, beating the broad market. Moreover,...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!