Gold’s Fundamental Price In Big Move As Scarcity Increases Supply
Keith Weiner | Aug 30, 2018 12:13AM ET
While the price of gold was up $19 last week, the price of silver was unchanged. Of course, we are not going to bias our discussions of the fundamentals, based on bearish or bullish theory.
Let us take a look at the supply and demand fundamentals of both metals. But first, here is the chart of the prices of gold and silver.
Gold and silver priced in USD
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 again last week.
Gold-silver ratio – still rising
Here is the gold graph showing gold co-basis and the price of the dollar in terms of gold price.
Gold basis, co-basis and the USD priced in milligrams of gold
It is notable that even with the dollar moving down (which most people miscall gold moving up) gold becomes scarcer. The co-basis (our measure of scarcity) is up about 20bps.
It is a bit odd that the father-out contracts did not move, with the Monetary Metals Gold Fundamental Price rose $71, from $1,295 to $1,366. A big move!
Theoretical fundamental gold price vs. the market price – a surprisingly large upside move in the former was registered last week. Unless it is a short term technical fluke, this may be a subtle sign that trend changes over a more wide-ranging set of economic and market data are approaching. [PT]
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Now let’s look at silver.
The picture in silver was a bit different. With the price not moving, we see the scarcity falling. The same occurs in the farther contracts and the continuous silver co-basis .
Silver basis, co-basis and the USD priced in grams of silver – in silver the scarcity increase observed in gold was not replicated.
The Monetary Metals Silver Fundamental Price fell 41 more cents, from $16.19 to $15.78.
Silver not only has a more volatile price, it also has more volatile fundamentals. Remember, the fundamental price is just a calculation of what price would clear metal if the impact of futures speculators were backed out of the market.
It fell quite a bit, but it is still a buck above the market price.
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