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Precious Metals Supply-Demand Report

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

Fundamental Developments

The price of gold dropped two bucks, and silver two cents. However, it was a pretty wild ride around the time when some information came out from our monetary masters at their annual boondoggle at Jackson Hole. We will show some charts of Friday’s intraday action, below.

Kuro Yellen Dragh

The overseers of the developed world’s major currency printing presses at Jackson Hole. It almost looks as if they have been literally put out to pasture, alas, that is not the case. [PT] Photo credit: Reuters - Click to enlarge

Gold and Silver Price

As always, the question is which moves are driven by fundamentals, and which by speculation? We will show graphs of the basis, the true measure of the fundamentals.

But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.

Gold and Silver Price

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

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. The ratio barely budged.

 

In this graph, we show both bid and offer prices for the gold-silver ratio. If you were to sell gold on the bid and buy silver at the ask, that is the lower bid price. Conversely, if you sold silver on the bid and bought gold at the offer, that is the higher offer price.

 

Gold:Silver Ratio

(see more posts on gold silver ratio, )
Gold:Silver Ratio

Gold-silver ratio, bid and ask - Click to enlarge

 

Gold Basis and Co-basis and the Dollar Price

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.

Here is the gold graph.

The price didn’t move much, and neither did the basis.

So our calculated gold fundamental price was up $5, to $1,330.

 

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, co-basis and the US dollar priced in milligrams of gold - Click to enlarge

Gold Price and Gold Basis, Friday 25 August

More interestingly, let’s look at the basis action when the price was gyrating on Friday.

The correlation between basis and price is uncanny, isn’t it? And it works in both directions. Manipulators speculators were buying paper gold from around 13:15 GMT (which is 14:15 BST or 9:15 NY time). Then these same manipulators speculators — or was it a different group, who overpowered the first, hm? — started selling at around 13:40. Then buying resumed at 14:00.

We are joking about the manipulation, of course. In our view, superstition thrives where people struggle to explain what they see without a scientific theory. Once upon a time, they saw thunder and lightning and thought the gods were having battle, or perhaps expressing anger at some sin of man. Such mythology could not survive the advent of the field of meteorology (if even that long).

The manipulation myth similarly doesn’t belong in a world where there is an arbitrage theory of markets, and daily pictures of the basis and co-basis.

Note also the rise in price at 15:00, without a rise in basis. That likely reflects some buying of physical metal.

Gold Price and Gold Basis, Friday 25 August

Gold Price and Gold Basis, Friday 25 August

Gold price and gold basis intraday on Friday last week - Click to enlarge

Silver Basis and Co-basis and the Dollar Price

Now let’s look at silver.

The basis fell and the co-basis rose. Not a lot, but it did lift our calculated silver fundamental price $0.20 to $17.18.

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 priced in grams of silver - Click to enlarge

Silver Basis and Co-basis and the Dollar Price

Here is the intraday price and basis graph for silver during Friday’s roller-coaster.

As with gold, the basis tracks the price. The moves in both directions were driven by speculative trading.

Silver Price and Silver Basis, Friday 25 August

(see more posts on silver basis, silver price, )
Silver Price and Silver Basis, Friday 25 August

Silver price and silver basis intraday on Friday - Click to enlarge

 

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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