Fundamental Developments –  The Gap Keeps Widening

Last week, the lighthouse went down 24 meters (gold went down $24), or 50 inches (if you prefer, silver went down 50 cents).

 

They done whacked our lighthouse! [PT]

Image credit: Skip Willits

 

However, let’s take a look at the only true picture of supply and demand. Are the fundamentals dropping with the market price?

We will look at an updated picture of the supply and demand picture. But first, here is the chart of the prices of gold and silver.

 

Lighthouses 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 rose last week.

 

Gold-silver ratio

 

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

 

We see the big move up in the dollar (ok, ok, down in gold if you insist on thinking in such terms!). And with it, a rise in the co-basis (i.e., the scarcity of gold).

Unlike the market price, the Monetary Metals Gold Fundamental Price did not move that much. While the market price fell $24, the fundamental price fell $8, from $1,303 to $1,295. Here an updated chart of the fundamental gold price vs. the market price:

 

Theoretical fundamental gold price vs. market price: a growing gap [PT]

 

Now let’s look at silver.

 

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

 

With this drop in price (and as the Sep contract rapidly approaches expiry, and hence is under selling pressure, causing a falling basis and rising co-basis) we see the September silver co-basis has risen above zero — backwardation. Farther out months are not so dramatic, but the same move occurs.

The Monetary Metals Silver Fundamental Price fell only 4 by cents, from $16.23 to $16.19. Pretty remarkable for a week in which the market price dropped so much.

The fundamentals of gold look pretty firm and those of silver may be firming up here as well.

 

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.

 

 

 

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