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 may be a week that brings news of a trade deal between America and China. If so, one would expect the stock market to rally. And therefore the prices of the metals, gold more than silver in this case, to drop a bit. That raises the question why.

Notwithstanding the paper-bug argument that gold is a terrible investment, and notwithstanding the goldbug argument that gold will be a great investment — gold is not an investment. It is money. And silver too.

One holds money if one expects investments to have a negative return.

So, when the stock market and property market turns (when, not if) this is a likely driver for people in general to turn to the monetary metals as a safe haven.

Arguably they have, already, which is why gold is $1,400. But while there is near-ubiquitous faith in the stock market, there may not be aggressive pursuit of gold.

 

Fundamental Developments

Now let’s look at the only true picture of supply and demand for 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). The ratio rose further.

 

Gold-silver ratio, bid and offer

 

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

 

In light of the continued drop in the dollar (i.e. rise in the price of gold in dollar terms), the drop in gold’s scarcity (i.e., the co-basis) looks modest indeed.

The Monetary Metals Gold Fundamental Price rose another $22 to $1,462.

Now let’s look at silver.

 

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

 

With silver, we can see its scarcity is following the dollar price. That is, silver becomes scarcer when it sells, and more abundant when it is bid up.

The Monetary Metals Silver Fundamental Price rose 23 cents to $15.74.

Although the market gold-silver ratio rose, the Monetary Metals calculated gold-silver ratio barely budged.

 

© 2019 Monetary Metals

 

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, the Safe Haven – Precious Metals Supply and Demand”

  • utopiacowboy:

    The fluctuations of the gold price based on fleeting political issues are not worth following. Gold will do nothing until the end of Trump’s second term in 2024. After that the deluge but it will take decades.

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