Fundamental Developments

While the price of gold was up $19 last week, the price of silver was unchanged. Of course, we are not going to bias our discussions of the fundamentals, based on bearish or bullish theory.


This week it turned out that the lighthouse is actually more solid than many people seem to think of late… [PT]


Let us take a look at the supply and demand fundamentals of both metals. 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 rose again last week.


Gold-silver ratio – still rising


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


It is notable that even with the dollar moving down (which most people miscall gold moving up) gold becomes scarcer. The co-basis (our measure of scarcity) is up about 20bps.

It is a bit odd that the father-out contracts did not move, with the  continuous gold co-basis  unchanged. This week, the Monetary Metals Gold Fundamental Price rose $71, from $1,295 to $1,366. A big move!


Theoretical fundamental gold price vs. the market price – a surprisingly large upside move in the former was registered last week. Unless it is a short term technical fluke, this may be a subtle sign that trend changes over a more wide-ranging set of economic and market data are approaching. [PT]


Now let’s look at silver.

The picture in silver was a bit different. With the price not moving, we see the scarcity falling. The same occurs in the farther contracts and the continuous silver co-basis.


Silver basis, co-basis and the USD priced in grams of silver – in silver the scarcity increase observed in gold was not replicated.


The Monetary Metals Silver Fundamental Price fell 41 more cents, from $16.19 to $15.78.

Silver not only has a more volatile price, it also has more volatile fundamentals. Remember, the fundamental price is just a calculation of what price would clear metal if the impact of futures speculators were backed out of the market.

It fell quite a bit, but it is still a buck above the market price.


Preparing for sandwich day –  the day when you might really need your gold hoard…  [PT]


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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One Response to “Gold’s Fundamental Price in Big Move as Scarcity Increases – Precious Metals Supply and Demand”

  • HardMoney:

    On an expanded version of this weeks article that you’ve posted elsewhere you’ve noted some market players expect a plunge in the next crisis due to emerging market gold loans.

    Not sure where your contact got his analysis on emerging market gold loans from but, at least in India, as a percentage of total estimated gold holding this is potentially not meaningful. See link to some analysis from 2012 – estimate of 1.3% of holdings encumbered. 2013 was around the time that some finance companies had their stocks come under pressure due to fear of gold loans defaults (which never happened) – so doubt the picture has changed materially.,%20Issue%2001,%20July%202015_IJCSMSJuly2015_13_17_Nandakumar.pdf

    I too have heard of a midsize hedge fund buying put and call spreads – with an expectation of a plunge followed by a multibagger – but not the emerging market rationale.

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