Fundamental Price of Gold Decouples Slightly – Precious Metals Supply and Demand

The Fundamental Price has Deteriorated, but…

Let us look at the only true picture of supply and demand in the gold and silver markets, i.e., the basis. After peaking at the end of April, our model of the fundamental price of gold came down to the level it reached last November. $1,300. Which is below the level it inhabited since Q2 2017.

We will look at an updated picture of the supply and demand picture. But first, here is the chart of the prices of gold and silver.

Gold and Silver Price

Gold and silver priced in USD - 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 (see here for an explanation of bid and offer prices for the ratio). It rose this week.

Gold:Silver Ratio

Gold-silver ratio - Click to enlarge

Gold Basis and  Gold Co-basis

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

The price barely moved. And the basis (abundance) and co-basis (scarcity) barely moved too.

Gold Basis and Co-basis and the Dollar Price

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

Gold Fundamental Price

And the Monetary Metals Gold Fundamental Price also barely moved, down $1 last week to $1,303. However, this is notable. Let’s look at an updated chart of the  fundamental gold price, going back to April 2017.

The red arrows show the trend since the end of June. The market price has moved down about fifty bucks, in contrast to the fundamental price which has moved sideways.

Obviously, this does not mean that the market price cannot go lower. And there is no guarantee that the fundamentals will hold. However, it suggests that traders now ought to be thinking of buying gold.

Apart from the contrarian angle, that the price has moved down a lot — about $150 since mid-April — this is the reality of where supply of metal intersects demand of metal.

Or, rather, it would be the intersection point if it weren’t for those pesky leveraged speculators who can pull the price away from this intersection. As they are now.

Gold Fundamental Price

Fundamental vs. market price for gold – while the market price continues to decline, the fundamental price has begun to move sideways. This decoupling has widened the gap between them again. - Click to enlarge

Silver Basis and Co-basis

Now let’s look at silver.

Although the September silver contract shows a falling basis and rising co-basis, the silver basis continuous didn’t move much. However, the market price of silver dropped this week.

The Monetary Metals Silver Fundamental Price fell 29 cents, from $16.52 to $16.23, and it has been in a downtrend since the third week of May.

Silver Basis and Co-basis and the Dollar Price

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