The price action was mixed this week. Those hoping for
dollar declines in gold terms were disappointed. However, silver gave them a
sop as the price of the buck declined by one one-hundredth of a gram of silver.
In Monetarist terms, gold went down $18 and silver up 11 cents.
Monetarism, in its insistence that the dollar be used to
measure gold, is in denial that the value of the dollar is unstable. Everyone
knows that the Fed tries to devalue the dollar at 2 percent per annum (as it
reckons it), yet insists on using it as the meter stick for measuring economic
value.
The big story this week is the silver manipulation lawsuit.
We remain flabbergasted that people think the price of a commodity could be
suppressed by 75% (or a lot more, by some allegations) for years. We also note
that the anger is not on the part of silver
buyers. It’s would-be sellers
who are upset. They wanted to sell at higher prices, and they allege the banks
beat them to it, and the price fell before they could unload.
We will publish an article this week by Bron Suchecki, which
looks into this scandal with our unique combination of economics, market
mechanics, and data.
In this Report, we will give an update on those pesky fundamentals.
But first, here’s the graph of the metals’ prices.
The Prices of Gold and Silver
Next, this is a graph of the gold price measured in silver,
otherwise known as the gold to silver ratio. It fell a bit more this week.
The Ratio of the Gold Price to the Silver Price
For each metal, we
will look at a graph of the basis and cobasis 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 cobasis in red.
Here is the gold graph.
The Gold Basis and Cobasis and the Dollar Price
The price of gold fell (i.e. the price of the dollar rose,
green line). Look at the dollar, shooting the moon on the top-right corner of
the chart! This is bad for those hoping to buy dollars in the near future, as
the same gold will buy fewer of the Fed’s Notes.
However, most people speculate heavily on the dollar and the
majority of their wealth is in either dollar-denominated securities or in the
form of credit granted to the Fed and the banks. That speculation worked out
well this week, as it has for the second half of this year.
Our measure of gold’s scarcity, the cobasis, moved sideways
while the price of gold dropped. Unsurprisingly, our calculated fundamental
price of gold fell again. It’s now $1,190.
Now let’s look at silver.
The Silver Basis and Cobasis and the Dollar Price
In silver, we see an 11-cent rise in price but the cobasis is
falling.
Our calculated fundamental price moved up to over $15.
The speculation in the wake of the Italian referendum last
weekend did not hold. Nor did a bigger wave on Wednesday, which took the price
to over $17.20. The fundamentals act as an anchor. It’s no guarantee of a price
change in the immediate term, but over the intermediate to longer term, they’re
an anchor. Friction and gravity will win in the end (unless the fundamentals
change before then).
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Keith Weiner is CEO of Monetary Metals, a precious metals fund company in Scottsdale, Arizona. He is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. He is founder of DiamondWare, a software company sold to Nortel in 2008, and he currently serves as president of the Gold Standard Institute USA.
Weiner attended university at Rensselaer Polytechnic Institute, and earned his PhD at the New Austrian School of Economics. He blogs about gold and the dollar, and his articles appear on Zero Hedge, Kitco, and other leading sites. As a leading authority and advocate for rational monetary policy, he has appeared on financial television, The Peter Schiff Show and as a speaker at FreedomFest. He lives with his wife near Phoenix, Arizona.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
