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Flight of the Bricks – Precious Metals Supply and Demand

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

The Lighthouse Moves

Picture, if you will, a brick slowly falling off a cliff. The brick is printed with green ink, and engraved on it are the words “Federal Reserve Note” (FRN). A camera is mounted to the brick.

The camera shows lots of things moving up. The cliff face is whizzing upwards at a blur. A black painted brick labeled “oil” is going up pretty fast, but not so fast as the cliff face. It is up 26% in a year.

A special brick, a government data brick of sorts, labeled “CPI-U” has been going up ever so slowly. At least according to the camera on the FRN brick.

In this surreal vertical landscape-in-motion, the lighthouse across the water, labeled gold, went up $13 this week. Amazing, these GoPro cameras, able to capture such a thing while falling off a cliff attached to a brick… The silver streamer tied to the gold lighthouse went up 24 cents.

If the CPI-U is to be believed, the purchasing power of the dollar went down slightly. So that means the purchasing power of your gold went up slightly more than slightly and the purchasing power of your silver went up slightly more than that.

US Consumer Price Index, Jan 2003 - 2018

(see more posts on U.S. Consumer Price Index, )
US Consumer Price Index, Jan 2003 - 2018

- Click to enlarge

Fundamental Developments – Gold Scarcity Continues to Increase

If this continues, it promises to be a great trip… but will it? We will look at that. But first, here is the chart of the prices of gold and silver.

Gold and Silver Prices

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

Gold and silver priced in USD - Click to enlarge

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 fell slightly this week, i.e., silver went up objectively, in gold terms.

Gold:Silver Ratio

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

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

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 Dollar Price

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

Gold basis, co-basis and the USD priced in milligrams of gold - Click to enlarge

We see a non-speculative, i.e., fundamental move occurring here, particularly since around March 20. The FRN brick has been falling as seen from the gold lighthouse (OK, this is the inverse of the rising price of gold measured in dollars).

Yet gold’s scarcity in the market has been rising in the face of this. The typical pattern when speculators are driving the market is that gold scarcity moves with the dollar price. As the dollar rises (i.e., the price of gold falls) gold becomes more scarce. As the dollar falls, gold becomes more abundant. Not at the moment.

So it should not be a surprise that the Monetary Metals Gold Fundamental Price rose a further $16 this week (now over $1,500).

Now let’s look at silver.

It is a bit different in silver. The scarcity of this metal fell a bit.

Silver Basis, Co-basis and the Dollar Price

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

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

However, the Monetary Metals Silver Fundamental Price rose 36 cents to $17.46. The fundamental price is now back where it had been in the third week of March.

Unlike in gold, there is no rising trend for the silver fundamental price. It’s been sideways action since September last year, and arguably in a downtrend making lower highs since February 2017.

© 2018 Monetary Metals

Charts by St. Louis Fed, Monetary Metals

Chart and image captions by PT

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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