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Fear and Longing – Precious Metals Supply and Demand

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

Waiting for Permanent Backwardation 

The price of gold dropped 9 bucks, while that of silver rose 3 cents. Readers often ask us if permanent backwardation (when gold withdraws its bid on the dollar) is still coming. We say it is certain (unless we can avert it by offering interest on gold at large scale). They ask is it imminent, and we think this is with a mixture of fear and longing for a higher gold price.

We say well yeah that will bring a much higher gold price (perhaps it will hit some of the gold bug predictions, or perhaps it will go off the board before getting that high) but be careful what you wish for. And it’s not imminent. We will have a graph below that gives it some perspective.

In the meantime, we all watch the price of gold and maybe trade it when there’s a clear opportunity. Speaking of which, we will show the only true picture of the fundamentals of supply and demand in gold.

Cursed Treasure

Lettuce hope this treasure is not cursed… but it probably is. - Click to enlarge

Fundamental Developments

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 this week.

Gold:Silver Ratio

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

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

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

The price of gold fell slightly (which means the dollar rose, as measured in gold). And with the price drop comes an increase in scarcity (i.e. the co-basis, the red line). Alas, this is just the near contract which is already under selling pressure as it expires in a few weeks. Farther contracts do not show an increase in scarcity, but a slight decrease (not a sign of imminent backwardation).

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 USD priced in milligrams of gold - Click to enlarge

Here is a graph of the gold term structure. Note no backwardation, and each farther contract has a higher basis (which is normal).

Gold Basis and Co-basis

(see more posts on gold basis, Gold co-basis, )
Gold Basis and Co-basis

Gold term structure – no backwardation in sight yet - Click to enlarge

The Monetary Metals Gold Fundamental Price fell $41 this week to $1,497. Now let’s look at silver.

In silver, not only did the price rise (a few pennies) but scarcity increased in the near and farther contracts. So it should not be a surprise that the Monetary Metals Silver Fundamental Price rose 20 cents to $17.69.

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

Here is a graph of the silver term structure.

Silver Basis and Co-basis

(see more posts on silver basis, Silver co-basis, )
Silver Basis and Co-basis

Silver term structure – nothing out of the ordinary. - Click to enlarge

 

Charts by: 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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