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Monetary Metals Supply and Demand Report 2 Aug
You cannot understand gold if you think it goes up and down, that the dollar is money and therefore the measure of all things, including gold. This is a very bold statement, so let’s look a little closer.
Mainstream articles often ask the question if gold is a good inflation hedge, which means: does gold go up as much as consumer prices. You know what comes next. They trot out a chart of the Consumer Price Index with the price of gold overlaid on it. And guess what. Gold fails to protect against inflation (i.e. its price does not go up with CPI). Therefore, you should buy stocks and real estate. QED.
A related error is to lump gold in with commodities such as copper (much less lumber or wheat). It is often supposed that commodities as a group should go up or down together. These can be correlated at times, but there is no law of the universe that makes it so. Every bushel of wheat, every barrel of oil, every board of lumber is produced in order to be used, consumed.
Supply and demand in the timber market, for example, can be visualized like a race between construction and forestry, with prices changing as one side and then the other gets ahead or falls behind. However, gold is produced to be held and not consumed. Virtually all of the gold produced over thousands of years is still in human hands. All of this gold is potential supply, under the right conditions.
There is simply no analogy between gold and any ordinary commodity.
Another related error is to plot the quantity of money with the price of gold. This one is not restricted just to mainstream paper bugs. Gold conspiracy theorists also use it. The price of gold does not track the dollar supply, therefore manipulation. As with commodity prices, there is no guarantee that the price of gold needs to track M0 or M2 or whatever favorite measure of the number of dollars.
Changing tacks, did anyone in Greece buy gold a month ago? If so, it surely wasn’t about rising consumer prices! For those not following the story, the Greek banks were closed and Greece imposed capital controls. Anyone who left euros on deposit in a Greek bank now faces uncertainty and threat of significant loss. Those with gold don’t have that worry.
Many analysts also chart the price of gold against the interest rate. “Does Gold Do Well When Rates Rise (or fall)?” they ask. A quick look through history show a rising price of gold during the 1970’s, along with a rising interest rate. In the 2000’s, there was a rising price of gold and a falling interest rate. The interest rate has been falling since 1981. In this period, there have been times when the price of gold was rising and others when it was falling.
These spurious correlations with the gold price remind us of superstitions like the Redskins Rule—if the Washington Redskins win their last home game before the election, then the incumbent party will win the presidential election. It is nothing more than the fallacy of cum hoc ergo propter hoc—a correlation between two events does not prove that one caused the other.
If you start with the assumption that gold goes up and down, then you won’t be able to understand the gold market, not to predict price moves nor understand them after the fact.
It is true—frustratingly, lamentably, damnably true—that the market quotes a price of gold in dollars. This is simply upside down. Suppose that you stretched three rubber bands to match the length of a steel rod. You would never say that the rod is three ‘bands long—not even if a million people started quoting rod length in terms of rubber bands. You wouldn’t wonder what makes the rod sometimes grow longer, and sometimes shrink. There is definitely no rod-shrinking cartel. ;)
The dollar is, in realty, priced in gold. No matter how many folks argue otherwise. No matter how much they spend for a business suit, or how many TV programs interview them.
The dollar mostly goes down. At the inception of the Federal Reserve, the dollar was worth over 1500mg gold. At the low of 2011, it was around 16mg. So far, it has bounced to over 28mg.
Something is happening with gold… to be continued next week.
Now, on to this week’s action. The price of gold is down 4 bucks, but the price of silver is up 13 pennies.
Read on for the only accurate picture of the supply and demand conditions in the gold and silver markets, based on the basis and cobasis.
First, here is the graph of the metals’ prices.
The Prices of Gold and Silver
We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can’t tell them whether the globe, on net, is hoarding or dishoarding.
One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.
Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual production (stocks to flows) can be measured in months. The world just does not keep much inventory in wheat or oil.
With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply. Everyone on the planet is potential demand. At the right price, and under the right conditions. Looking at incremental changes in mine output or electronic manufacturing is not helpful to predict the future prices of the metals. For an introduction and guide to our concepts and theory, click here.
Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio moved down 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 the dollar rose a bit more (i.e. the price of gold fell). Again, along with this price move, the scarcity of gold rose.
The cobasis is the annualized rate one can earn by decarrying gold. Decarrying means to sell a bar and simultaneously buy a futures contract. The cobasis for October is about +0.3%. The cobasis for December is up to about +0.1%. And for February 2016, the cobasis is a mere -0.1%.
By the standard of the new normal, post 2008, this is not a crisis. However, by no means is it normal.
We calculate a fundamental price about a hundred bucks over the market price.
Now let’s look at silver.
The Silver Basis and Cobasis and the Dollar Price
The silver price is up a bit (i.e. the price of the dollar, as measured in silver, is down 0.01g). Along with this price move, we see a drop in the scarcity (i.e. cobasis) of silver. The December silver cobasis, for comparison, is -0.3%.
The fundamental price in silver is now about a nickel above the market price. If there is a reason for caution regarding the price of gold, it is that the prices of the metals tend to correlate and with no fundamental reason to drive up the price of silver, that could act as a damper for the gold price. Of course, unless the fundamentals of gold weaken further, they will assert themselves at some point—forcefully. A hundred-dollar move would be over 9%.
Let’s end with a look at a long-term picture of the price of silver, measure in gold terms. This graph goes back to 1997.
Long-Term Chart of the Silver Price
In this long view, we can see that the price of silver is close to a multi-decade low. Of course, it’s possible it could break down to new lows. But before we would subscribe to that view, we would need to see a driver for that to occur.
By the way, our fundamental price for silver in gold terms is around 385mg. The current market price is around 420mg. This is less than 10% downside.
© 2015 Monetary Metals
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The hate continues for me I see.
The minute gold touches $999 I think it is short step to $800 as everyone heads for the gates. Only the strong gold holders will survive - namely those who don't need it! If you go all in on gold and then need to get some cash out to buy food or pay bills, that bitch will not answer the door and she will change the locks on you. You will be looking inside your old house while she puts your dog in the washing machine on the HD cycle. You will be locked out and desperate to get what was once yours. Guys, I tell you that Gold is not the safe haven you believe it to at this particular moment in history. Is it saving the lives of people in Greece right now? Fuck no. Euros are what matter in Greece. Is it saving the lives of the unemployed middle class gold horders in the US right now? No, they are getting turned over.
Is this intentional? Maybe, maybe not. Does it really matter as the effect is the same.
You are better off holding cash money now. And if you need to buy an 'asset' then buy a freezer and fill it full of food before you buy one more ounce of gold.
+1 "Only the strong gold holders will survive - namely those who don't need it!"
indeed, only strong hands end up with the gold, historically
so do hold gold, but not so much that it's gold holding you, because if you do allow it, it might drop you as a weak hand
Show us concrete examples of Greeks using gold, otherwise you have no credibility.
Unless the grocery store's supplier accepts gold why would the grocery store take gold. The on-the-ground stories discuss barter.
This is a typical gold pump and dump.
He has no credibility for other reasons.
Weiner wont admit gold is manipulated DOWN by central banks and their agents in order to put lipstick on the dollar pig. This goes quadruple for silver.
Id love to lock Wiener in a room with Chris Powell for 6 hours, and tape the whole thing.
Weiners lack of credibility and erroneous reasoning is most evident in his own chart.
Why on earth Mr. Wiener, does silver trace gold. Like you said, gold is like no other commodity. Silver however is -mostly- like other commodities.
Mr. Wiener is either a deluded acadmic, or spreading disinfo. What ever the reason for his wrongheadedness, he should be ignored.
"If you start with the assumption that gold goes up and down, then you won’t be able to understand the gold market, not to predict price moves nor understand them after the fact."
Gold does go up and down, just as any commodity does. Just as any asset does.
Who wanted to buy gold at 700 dollars an ounce in 1980 and be holding it in 1999.
People have been complaining about the price of gold in 2015, having dropped from 1,900 to 1,100.
Who predicted gold would be 1,100 in 2015?
Egghead academics in their attempt to achieve notoriety, love to make bold statements like that, then try and fill in the many blanks after the fact with obsfuscation and spurious reasoning. Anatal Feteke's a bit that way himself.
That was informative.
Thanks!
Well lets see...
I have seen predictions about PM going form worthless to up going to the moon, in time going from the past to well beyond what I will live through.
So in short: yes someone was or will be right ...
If you can't make up your own mind you just have to follow some one else his ideas. If right most will claim it was there own thinking, if not they have one to blame.
i'm fine with all of it, but rather make up my own mind and enjoy the good or endure the bad of it.
Both are leassons for me and should be for others.
In current time failures are most used to mock you and success makes most jealous, so verry few are let in in what i do.
If one has no clue about what direction we are going no amount of good advice will be of any help.
Take care
However, gold is produced to be held and not consumed........
This is wrong.
Every cell phone has a content of 0.08 grams of gold (on average), every PC/Notebook has app. 1 gram of gold (cpu pins, pci pins, pins on memory slot, pins on NIC connector, all of them have golden surface; it has to be so technically, gold does not corrode and is an excellent electrical medium, also dissipating very well all heat.
Gold is used in the production.
Now let us calculate 1*10^9 cell phones produced every year.
This makes 0.08/1000/1000 tons of gold this is 80 tons annually. Cell phones only. What about networking equipment, tablets and PCs (content of gold up to 1 gram manufactured 300 million per year) ?
Principally correct, but most of those phones are recycled nowadays. there's even a (very small) positive price for used electronics, precisely because of that tiny gold percentage.
I don't think the iranians are looking to sell gold. they're a little wierd, but they are not stupid.
So the dollar measures gold? Then how come the dollar grew weaker until about a year ago - even while gold collapsed from $1800 to $1300?
The downvotes show that I have angered the Gold Bugz @ ZH
Guys, I don't hate gold (or you), I just think the gold price will get a lot worse and go a lot longer than anyone expects.
Fine, fuck your crazy psycho girlfriend if you want, just don't marry the bitch and dedicate your life to it.
For what it's worth, I think you're spot on with the advice. I'm watching as gold dips below $1,090 and apparently headed to that $800 figure (I plan to buy another pound.) I'm watching silver, too.
While I know that no one should put evrything on one asset, I've already invested in lead, food and water. Friday we bought 100# of meat and packed it in the freezer. Bills are paid a year in advance. I'm now looking for something that will survive beyond the petrodollar (which is getting machine-gunned on a daily basis) and any other currency. To me that would be gold/silver/FMJ lead. All physical, in your hand, no counter-party.
I fully expect gold/silver to dive lower. I'm holding off making the purchase because I have the feeling that $800 is more realistic in the current manipulated market. I read that number somewhere else a month or so ago, and you having it confirmed independently is even more convincing.
So I'm gathering petros and waiting for the moment I feel it's near the ass end.
We are doing the same, however we fear the availability at that price.
I have 10 turkeys and 15 meat chickens coming along. Stacking up food for them because the land this time of year doesn't provide well. Our chest freezers are full too. 10k gallon of water in storage. Hopefully we can ride out the coming storm but you never know what will happen.
May we live through any 1st disaster to correct the mistakes before the 2nd one strikes!
Miffed;-)
Go back and re-read the first sentence (assuming you even read it at all).
Edit: I didn't down-arrow you. Good luck.
What the author failed to mention is that as all ZH readers know, the price of gold is manipulated. The supply for physical gold can barely keep up with demand yet the price keeps dropping. Secondly we all know that the CPI is also manipulated and bears no semblance to prices in the real world. Is there any wonder that gold prices do not correlate with inflation ?
For those of you who are losing patience, hang in there! I am sure that the Greeks who got their euros out of the bank 6 months and converted to gold are breathing a huge sigh of relief! Greece is soon coming to a country near you!
"What the author failed to mention is that as all ZH readers know, the price of gold is manipulated."
The price of gold was manipulated up to 1,900?
The article totally ignores the industrial off-take in silver. It refers to massive stockpiles in both gold and silver. No mention that silver is used in more products than any commodity other than crude oil.
Close, but no ceegar, MM.
John Q Public is at present not using gold as everyday money, the way fiat paper cash is used. Gold remains a price manipulated potential money item to be hoarded until the fiat system collapses and hopefully gold debuts as everyday money. Bitcoin has seen more success as everyday money. Theoretically I can see crytocurrencies and PM's working together as money. Btc needs a device, bandwidth, and some skills, PM's are as friendly to use as paper money. I could go to my black market trader, give him PM's and buy btc, then I could send the btc to someone half way across the world, and they could exchange them for PM,s over there. Cryptocurrencies transport PM's outside of the rigged system. This type of monetary system would support already existing underground economies presently run on cash. But because is would be made illegal the buyer and seller would have to cooperate to make the system of trade work.
Any object that is rare, durable, unreproducable, and divisible can become specie money if it becomes widely accepted by John Q Public for trade. The object need not have intrinsic value to become specie money, but it develops value because it has become money.
It is widespread human acceptace for trade that renders an object money, nothing else. Whether fiat or specie, the object remains money while it remains widely accepted. Personally I don't long term store a large amount of wealth in monetary objects because they are as unstable as human choice, are not well understood by the public, and are subject to manipulation by dark forces who understand the character of those monatary and potential monetary objects all too well. These forces favor fiat objects that they control and are skilled at using public ignorance to suppress the emergence of competing specie money objects. I don't expect the wider public, including many here on ZH, to develop a meaningful understanding of the character of money anytime soon, I think the moneymasters behind the veil will continue their games into the foreseeable future.
I got a tune up, tire rotation and fluid top off for 4 Silver Eagles. It was a very good deal for me.
I got a blow job and a fuck for one generic round. Was a good deal.
Yet Weiner & his buddies have been pimping the gold 'basis theory' for years. The theory originating from Antal Fekete & his observations on contango & backwardation in grain futures.
It is dangerous to have too much of one thing. Gold has a strong upside, however no matter how high it goes the Govt can still easy get you on it...taxes and regulations relating to gold can ruin your advantaage.
I have around 10% in bullion, I might aim for 15% if I can get some decent dips in quality miners.
What do you consider "decent"? Pan American Silver (PAAS) is trading where it was in 2002. That is when silver was sub $5!
So...to you bullion= miners?
Keith is always "frustratingly, lamentably, damnably" CLOSE to understanding the function of PMs in a post-fiat economy...
This article is not impartial. It is written by a gold pimp looking to create some beastiality love between a Gold Bug and a Golden Buffalo.
Now listen here Gold Bugz. I was one of you once. But like that crazy psychotic girlfriend who can suck a queball through a garden hose and rock your world one night - then throw your dog in the dishwasher the next while you are fighting....mate, there comes a time when you have to say, "Enough. Get the fuck out of my house."
Some gold is ok. A little gold insurance is good. But for the love of God do not start betting the family farm on gold and going all out.
I was a seller of physical in the Dubai Market yesterday. The thoughts of my Indian bullion buyer in Dubai: "Oh, sir, you should have come last week but better that you came this week instead of next week. We see price drifting down and down. Now we will soon have the Iranian gold traders in Dubai selling their gold. That will make prices go down much more. China is so slow. We see $800 coming. But we are selling lots of jewelry so we need gold for production."
His store had some Indians buying gold chains and what not. Nothing exceptional. Plenty of bullion coins and bars in Dubai. Duty free is CHOCK A BLOCK with KG bars. And he makes a good point about Iranian gold coming into the market as well.
The last time Greg Hunter interviewed Jim Rogers, Mr. Rogers said that the opportunity to buy gold hadn't arrived yet. I guess he was right. Here he is on another show saying the same damn thing!
https://www.youtube.com/watch?v=ByYwqli_bNA
Betting the family farm on any single asset class is stupid. Physical gold is still the 2nd best investment you can make, after physical silver which is more undervalued.
The fact that you are a seller, of physical no less, and that you care more about the price of gold than what it provides means that you value fiat more highly than sound money. Remove your ignorance and then listening may ensue.
Where else would you rather invest? Derivatives? Bankrupt goverments? All time high stock markets while contagion begins to rear its head? It's easy to bash one option, but if you can't provide a better one what's the point?
My relationship with gold is not quite like that...but I see you met my ex...
Hey dickhead. What's it matter to you what I invest in one way or another. It's not like you know me or care about me in any way. So fuck off with your propaganda.
lol... funny but true.
Gold has still not bottomed. But it's not too far off.
GOLD = $925
SILVER = $13
Somehow you've become an expert. Please tell me more so I can learn from your obviously incredible experience and knowledge.