Feel Good Now, Pay Dearly Later

The prices of the metals were up somewhat last week, gold +$7 and silver + ¢13.

The price of the S&P 500 index was up, as was the price of oil and copper, and the price of the euro, pound, and yuan. And bitcoin. Even the Treasury bond posted slight gains (i.e., there was a slight drop in yields).

 

There’s a reason why they call it the “everything bubble”. Its demise won’t be pretty, hence the recent frantic back-pedaling by assorted central bankers who tried to look “tough” for a second.  [PT]

 

This is how the system is supposed to work. Institutions and traders are supposed to feel safe borrowing more dollars to buy every kind of risk asset. To arbitrage the yield differential and speculate for capital gains.

Of course, the yield differential between the dollar and the developed economy currencies is negative. But at least there are capital gains.

So the central planners must feel good about the market moves this week.

There’s only one problem. These trades pile on more debt, in order to finance ownership of oil and copper. And the debt of other governments, which are themselves in the same pickle with no way out in the long term, if not short-term crises.

Businesses go on borrowing more and more, to consume copper and oil. They do this, in order to produce products. Which their customers borrow more and more to buy. When such borrowing can no longer be sustained, watch out.

One will not want to be in debt to finance a hoard of copper or oil. And the stocks of companies whose debt is impaired will certainly be no safe haven.

 

As of Q1 2018 global debt amounted to $247 trillion, another new record high. Debt growth has become exponential in recent years and much of it is either collateralized by overvalued assets or the state’s power of coercive tribute extraction from a shrinking pool of real wealth producers. Both of these require constant money printing. [PT]

 

Fundamental Developments

Perhaps today is not that day. Let’s look at the only true picture of the supply and demand fundamentals of gold and silver. 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 was down a hair this week.

 

Gold-silver ratio – this ratio is akin to a credit spread, when it contracts economic confidence is usually improving. [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

 

The price of gold is up, yet it is still scarcer (at least the near contract, the gold basis continuous is basically flat).

We keep writing about this, not because gold is so scarce that we fear a bout of backwardation or worse yet, permanent backwardation. We write about it because it is a change from the last several years. We now see the price rising amid rising scarcity. That means the rising price is driven by buying of physical metal. It is not merely leveraged futures speculators front-running each other.

The Monetary Metals Gold Fundamental Price is up another $12, to $1,419. It is above its level from a year ago (which peaked over $1,500 while the market price peaked around $1,450) – very interesting indeed.

Now let’s look at silver.

 

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

 

Unlike in gold, the scarcity of silver is down a bit. That means the rise in price is driven more by futures market speculation, and physical metal demand is a bit weaker.

Still, the Monetary Metals Silver Fundamental Price is holding pretty steady, down just 7 cents to $16.45

 

© 2019 Monetary Metals

 

Infographic by Mauldin Economics, charts by Bloomberg, 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

   
 

2 Responses to “A Case of Happy Borrowing – Precious Metals Supply and Demand”

  • rodney:

    Dear Pater,

    It is with joy and pleasure that I witness your presence among the quick. You have a loyal following here, and to say that we were worried is a bit of an understatement. I sincerely hope that you can soon enough put your health issues behind.

    Wishing you well,

    Rodney.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How Beijing Uses Fake Money to Cannibalize the U.S. Transit Market
      A Distorted Landscape One of the more remarkable achievements of fake money creation is that it distorts and disfigures the world in odd and uncanny ways.  Dow (not quite) 27,000.  Million dollar shacks.  Over $13 trillion in subzero-yielding debt. You name it.  Any and every disfiguration is possible with enough fake money.   The global stock of outstanding government bonds with negative yields-to-maturity reaches a new record high of more than $13 trillion – this is...
  • Gold, the Safe Haven - Precious Metals Supply and Demand
      Investments vs. Money Last week the price of gold went up another $11, but the price of silver dropped 4 cents. The gold-silver ratio hit another new high, up another point, though down from Tuesday’s high water mark. This obviously was not the week that wage-earners increased their money holdings or that institutions expressed a preference for the bargain of silver.   Prosperity is just around the corner... and so is the trade deal. [PT]   This coming week...
  • Independence Day in America Circa 2019
      Freedom and Apple Pie The days are long and hot in the Northern Hemisphere when real American patriots raise the stars and stripes. Today the free and brave, with duty and self-sacrifice, begrudgingly accept federal holiday pay to stand tall upon their own two feet. Rugged individualism and uncompromising independence are essential to their character.   Independence day festivities...   With purpose and intent, they assemble as merry mobs along the shoreline to...
  • The Strange Behavior of the US Dollar in the Wake of Fed Rate Cuts
      A Change in Interest Rate Expectations In the last issue of Seasonal Insights I discussed the typical pattern of stock prices when the Federal Reserve cuts interest rates.  As one would expect, the stock market tends to stabilize after cuts in the federal funds rate. The issue is topical, as many investors and analysts expect rate cuts to be implemented soon given that signs of an economic slowdown are beginning to proliferate.   Market expectations about the direction of...
  • The Four Dimensions of the Fake Money Order
      A Good Story with Minor Imperfections “If you don’t know where you are going, any road will get you there,” is a quote that’s oft misattributed to Lewis Carrol. The fact that there is ambiguity about who is behind this quote on ambiguity seems fitting. For our purposes today, the spirit of the quote is what we are after. We think it may help elucidate the strange and confusing world of fake money in which we all travel.   Consumer price index, y/y rate of change...
  • Wall of Worry M.I.A. -  Precious Metals Supply and Demand
      Too Much Excitement? The prices of the metals fell last week, with that of gold -$9 and silver -$0.32. Of course, it was a week of stock market exuberance. Why would anyone want to own money, or seek safety when the Fed can seemingly push interest down / assets up indefinitely? As the old TV ad for Lotto proclaimed “you gotta be in it, to win it!”   “Stablecoin” Tether is used as a dollar stand-in on cryptocurrency exchanges that offer no fiat currency pairs. There has...
  • Resistance Created by Long-Suffering “Hodlers” - Precious Metals Supply and Demand
      Gold vs Other Assets The prices of the metals went up +$15 and +$0.23. We will be brief this week, as Keith just got off a 17-hour flight from Perth to London. Stocks continue their march upwards. And hence the gold price seems stalled—or is it? It may seem like gold goes up, when stocks go down and vice versa. That’s been the recent pattern. Why should people own money without return, when stocks are where the action is?   Gold-SPX ratio: in long-term gold bull markets,...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

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!