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Silver’s Got Fundamentals – Precious Metals Supply-Demand Report

See the introduction and the video for the terms gold basis, co-basis, backwardation and contango.

 

Supply-Demand Fundamentals Improve Noticeably

Last week was another short week, due to the New Year holiday. We look forward to getting back to our regularly scheduled market action.

RCM-3

Photo via thedailycoin.org - Click to enlarge

Gold and Silver Prices

The prices of both metals moved up again this week. Something very noticeable is occurring in the supply and demand fundamentals. We will give an update on that, but first, here’s the graph of the metals’ prices.

Gold and Silver Prices

(see more posts on gold price, silver price, )
Gold and Silver Prices

Prices of gold and silver. - Click to enlarge

Gold:Silver Ratio

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It fell a bit this week.

For each metal, we will look at a graph of the basis and co-basis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and co-basis in red.

Gold:Silver Ratio

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Gold:Silver Ratio

Gold-silver ratio. - Click to enlarge

Gold Basis and Co-basis and The Dollar Price

Here is the gold graph.

We now have several weeks of data to see a distinct pattern. Since Dec 15, the dollar has been falling (which muggles perceive as gold rising, much the way people in a sinking ship see a lighthouse rising).

What’s new is that gold has been getting more scarce while this happens. The red line (i.e. the co-basis, our measure of scarcity) is rising while the green line (i.e. the dollar price in gold milligrams) is falling. This is no mere repositioning by speculators. It is fundamental demand.

What we don’t know yet is whether this is another flash in the pan, or if it will prove to be durable.

What we do know is that absent speculators, gold metal would be clearing at about 90 bucks above the current market price.

No one can guarantee that the price won’t drop (or the fundamentals won’t turn), but if you’re looking for a buying opportunity, you could do worse than the present.

Gold Basis and Co-basis and The Dollar Price

(see more posts on dollar price, gold basis, Gold co-basis, )
Gold Basis and Co-basis and The Dollar Price

Gold basis and co-basis and the dollar price. - Click to enlarge

Silver Basis and Co-basis and The Dollar Price

Now let’s look at silver.

In silver, we do not see the same pattern. We have a much higher basis (abundance) and a much lower co-basis. The dollar did not begin falling in silver terms until a week later than in gold.

We have had a recent rise in the co-basis, but it’s hard to say if it is rising the way gold’s co-basis is. We want to see more of a trend.

We calculate a fundamental price of silver now to be over $16.50. That is above the market price for the first time since… January 2016.

Silver Basis and Co-basis and The Dollar Price

(see more posts on dollar price, silver basis, Silver co-basis, )
Silver Basis and Co-basis and The Dollar Price

Silver basis and co-basis and the dollar price - Click to enlarge

Charts by Monetary Metals

 

 

Full story here
Keith Weiner is president of the Gold Standard Institute USA in Phoenix, Arizona, and CEO of the precious metals fund manager Monetary Metals. He created DiamondWare, a technology company that he sold to Nortel Networks in 2008. He has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona. In March 2015 he moved his Gold Standard column from Forbes to SNBCHF.com.
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