Submerged Lighthouse Syndrome – Precious Metals Supply and Demand

Fundamental Developments –  The Gap Keeps Widening

Last week, the lighthouse went down 24 meters (gold went down $24), or 50 inches (if you prefer, silver went down 50 cents).

However, let’s take a look at the only true picture of supply and demand. Are the fundamentals dropping with the market price?

Gold and Silver Price

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

Lighthouses 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 last week.

Gold:Silver Ratio

Gold-silver ratio - Click to enlarge

Gold Basis and Co-basis

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

We see the big move up in the dollar (ok, ok, down in gold if you insist on thinking in such terms!). And with it, a rise in the co-basis (i.e., the scarcity of gold).

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

Unlike the market price, the Monetary Metals Gold Fundamental Price did not move that much. While the market price fell $24, the fundamental price fell $8, from $1,303 to $1,295. Here an updated chart of the fundamental gold price vs. the market price:

Gold Fundamental Price

Theoretical fundamental gold price vs. market price: a growing gap [PT] - Click to enlarge

Silver Basis and Co-basis

Now let’s look at silver.

With this drop in price (and as the Sep contract rapidly approaches expiry, and hence is under selling pressure, causing a falling basis and rising co-basis) we see the September silver co-basis has risen above zero — backwardation. Farther out months are not so dramatic, but the same move occurs.

The Monetary Metals Silver Fundamental Price fell only 4 by cents, from $16.23 to $16.19. Pretty remarkable for a week in which the market price dropped so much.

The fundamentals of gold look pretty firm and those of silver may be firming up here as well.

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

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