There are now two entirely different notions of a coming “reset”. One has been popular among those who speculate on the gold price. They expect a revaluation of the dollar. However, the government does not set the value of the dollar. So there is no way to reset the value. Indeed, the government has been trying to push down the value of the dollar for over a decade, and mostly failing (because increasing quantity is not the same thing as decreasing value).
But that is not the reset discussed today. We want to look at the reset proposed by the World Economic Forum, and the book by Klaus Schwab and Thierry Malleret. They start with the fact that lockdowns have inflicted economic harm. They’ve impoverished people. And resulted in a random set of policies.
In a sense,

On Monday the dollar had a ferocious rally, moving up from 15.87mg gold to 16.77mg and from 1.21g silver to 1.32g. In mainstream terms, the price of gold dropped about a hundred bucks, and the price of silver crashed $2.20.
One notion we’re hearing a lot now is, “there is no alternative to stocks.” Certainly, stocks have been rallying. They were up in Sunday evening (as we reckon it here in Arizona) trading. Then Pfizer announced good news for its COVID vaccine, and that seemed to be the signal to bid up stocks even more.
Many in the mainstream believe that stock prices are linked to the economy. Many of the rest would quibble slightly, and say that stock prices predict the economy.
However, we argue that stocks and other assets trade inverse to interest rates. A

On Wednesday last week, the price of silver dropped from over $24.25 to just a bit over $23 before bouncing back to around $23.50. The next day, the price dropped again, briefly to around $22.60 before mostly recovering (but a dime to a quarter down).
Let’s look at the graph of the price and basis (i.e. abundance) action for 28 and 29 October.
At the end of the day (second day), the price is about a buck lower. And the basis (i.e. abundance) is about 50bps lower.
Note the rise in basis leading up to 8am Wednesday (London time, i.e. when Asia is online), with little rise in price. And then again around 18:00 (i.e. early afternoon in New York). And again 8:00 the next day.
Then the basis drops as the price drops. And rises as the price rises. Once the price is

On Friday, the price of silver went up from $24.25 to $25.20, or +4%.
Let’s look at the graph of the price and basis (i.e. abundance) action.
For the first part of the day, the action is from speculators, for the most part.
Then around the time that the US west coast comes online, we see a continued rise in price but a drop in basis back to where we started.
Folks, this is what buying of physical metal looks like: prices rises by about 30 cents accompanied by a drop in basis from about 2.9% to just over 1.9%.
If this continues, there will be a much higher silver price, relatively soon. Let’s keep an eye on the basis action!
This is a good segue into a topic we see discussed over and over again.
Gold & Silver…and Inflation
Let’s look at three slightly different

There was a big drop in the price of silver last Wednesday. Then the price moved up, and down, but mostly up. Let’s look at a graph of the silver price and basis showing Sep 30 through Oct 5, with intraday resolution.
Let’s take a look:
It’s remarkable how the basis tracks the price, until Oct 5.
When basis tracks price, this means the action is primarily in the futures market. At times when the price is rising, the basis is rising—which simply means that the spread between spot and futures is widening. At times when the price is falling, the spread between spot and futures is narrowing.
Picture a force pushing up or down on the futures price, and the spot price reluctantly follows. It is dragged along by arbitragers.
Until Monday October 5.
Early in the day, we

While the silver price was dropping recently, we published analyses here and here.
At that time, we saw a basis that fell with price, but which recovered during “off” days. In short, there was not much of a decrease in abundance of the metal to the markets commensurate with the price drops.
On Monday, the price went up from about $22.95 to about $23.70, a gain of 3.3%.
Let’s look at the intraday price and basis action.
There are several trends.
The day begins with rising basis and falling price—selling of metal. Then falling basis and rising price—buying of metal. And falling basis and falling price—selling futures. And so on.
At the end of the day, the price is up almost a buck and the basis is up from 1.6% to 2%. This day, futures buyers pushed up the price.

A few days ago, we wrote about a big silver crash. The price dropped around 7.5%.
And the basis dropped from around 2% to 0.6%. At the end, we said:
“The key question is: what is the follow-through? If the price stays down and the basis goes back up, that will be a bearish signal. If the basis stays down, that means the silver market is markedly tighter at $24.50 than it was at $26.75.”
Which this brings us to yesterday’s silver dive. Here’s the graph of the day’s action.
At the start of our graph, 2am (London time) the price is just a bit lower than at the end of the first crash day. $24.25. But we see the basis is up to 2.3%. That’s higher than it was at the beginning of the first crash day, when the price was $26.75.
Clearly, there was some buying of futures in

The bet between Julian Simon and Paul Ehrlich shows a fatal flaw in how most people think about inflation.
Are you familiar with the bet? Ehrlich wrote a book titled The Population Bomb. He held a pessimistic view of the future, in which population growth would outstrip resources (essentially the same as Thomas Malthus).
Simon disagreed. So in 1980, they made a famous bet. Ehrlich thought that the real cost of commodities would be higher in 10 years. Simon said they would be lower.
They picked a group of five metals, to watch their prices. And made their bet, just at the end of the cycle of rising interest rates and rising prices that had begun after WWII. The majority of the decade occurred under the falling cycle which still prevails today. It is likely that

We are reading now about possible regulations for air travel. In brief: passengers might be forced to spend hours at the airport. Authorities will perform medical checks, including possibly needles to draw blood, no lounges, no food or drink on board the plane, masks required at all times, and even denied the use of a bathroom except by special permission.
We would wager an ounce of fine gold against a soggy dollar bill that people will hate this. The majority of vacationers will not want to fly. A holiday is supposed to be fun, and air travel promises to be a lot less fun that it was in March.
Even business travel will be discovered to be a lot more discretionary than previously believed. Forgetting continuing education and conferences chosen in tourist hotspots

The Federal Reserve has become more aggressive again, after several years of acting docile. As you can see on this chart of the Fed’s balance sheet, it has very rapidly expanded from a baseline from (prior to) 2015 through 2018, of about $4.4 trillion. After which, it had attempted to taper, getting down to $3.8 trillion last summer. Then it was obliged to reverse itself well before responding to the COVID lockdown. Since then, its balance sheet has gone vertical.

Fed Balance Sheet, 2015-2020 – Click to enlarge
More is expected to come. So, needless to say, more of what people call inflation—that is, rising prices—is expected to come. Never mind that in 1983, a pair of Levis 501 jeans was $50 (Keith remembers paying that price at that time) and today, the price

The loan is denominated in gold with interest and principal paid in gold
Scottsdale, Ariz., June 9, 2020—Monetary Metals® announced today that it has loaned gold to Sector Resources Canada Ltd., a British Columbia based gold mining company. The private transaction was conducted off-market, and the interest rate and terms were not disclosed.
Monetary Metals’ innovative business model enables gold-owning investors to lease or lend gold to businesses that use gold. Investors benefit because they earn interest on their gold investment, paid in gold. Qualified businesses also benefit, as borrowing in gold matches their gold income with gold expenses. This eliminates the borrower’s price risk of owning gold without the cost and risk of hedging.
“Monetary Metals has

The price of gold dropped a few bucks this week, but the price of silver jumped about half a buck. The drumbeat for the gold bull market is well underway, and it is beginning now for silver. So let’s do a quick update on the supply and demand fundamentals.
Gold Basis and Co-basis and the Dollar Price
Here is the graph of the gold basis.
The basis has come in quite a bit—but it is still 3.6% annualized. We do not believe that this as a “true” reading. It is a sign of buying of futures, which is the opposite of scarcity of metal and the opposite of the crisis goldbugs believe is imminent. To clarify, we believe a crisis of counterparty defaults is coming, but today is not that day.
We believe this is a sign of the market makers absent from the market. Their balance

Suppose you wanted to run an enterprise the right way (we know, we know, this is pretty far-out fiction, but bear with us). And, your enterprise has a $1 million dollar piece of equipment that wears out after 10 years. You must set aside $100,000 a year, so that you have $1 million at the end of 10 years when the equipment needs replacing. There’s a word, now archaic, to describe the account in which you set aside this money. From Wikipedia:
“A sinking fund is a fund established by an economic entity by setting aside revenue over a period of time to fund a future capital expense, or repayment of a long-term debt.”
Whether you borrowed the money to buy the equipment or whether you had equity capital to pay for it, the principle is the same. Unless your business is

Crispin Odey
I am writing in response to the comments you made in a letter to investors yesterday, which were widely reported. You have set the gold community afire, with claims that are not new and not true. So I shall attempt to douse the flames.
As everyone knows, President Roosevelt outlawed the ownership of gold in 1933. Although gold was legalized in 1975, fears linger today that the governments may repeat this heinous act. There is no reason for this fear. In 1933, Roosevelt had two monetary policy goals to accomplish by banning gold.
One was to stop the run on the banks. At that time, the dollar was redeemable. You brought a twenty dollar bill to a bank, and got a gold coin of just under one ounce. Redemptions forced the banks to sell bonds to raise the

The price of gold dropped $29 and the price of silver dropped $0.27. We’ll get back to where we think the prices are likely to go in a bit.
In recent Reports, we’ve looked at the elevated bid-ask spread in gold (though not nearly as elevated as some goldbugs would have you believe) and the elevated gold basis.
As an aside, we continue to see articles that get the high gold basis exactly backwards, the way John Maynard Keynes got commodity markets backwards. A high and rising basis is not a sign that anyone is worried about a shortage of metal, but of abundance.

Blowout in Spreads
Below is a graph of the spot price bid-offer spread in both gold and silver. Notice that, since April 3, the spread in gold is down significantly from its high (with one spike), though

The response to the virus has added a new mechanism of capital consumption to the many we have documented over the years. Businesses are shut down, yet they continue to incur expenses. There is a popular misconception out there that this is merely a paper loss. One can almost picture a neutron bomb that somehow wipes out only paper, leaving all the physical assets and plant unscathed. It’s a pleasant fantasy. And it’s quite a popular one—not only amongst all the usual suspects, but even an Austrian school economist of our acquaintance asserted it.
As an aside, this illustrates that, too often, economists are unfamiliar with business. The economist looks at a closed restaurant and thinks there’s no reason why this restaurant can’t be mothballed for a day, a week,

The price of gold has been up steadily for the last 30 days (with a few zigs and zags), now re-attaining the high it achieved prior to the big drop in March. Gold ended the week at $1,662. Alas, it’s not quite the same story in silver, whose price drop was bigger. Now its price blip is smaller. Silver ended the week at $15.19.
One does not need to look to the gold-silver ratio, which is currently off the charts, to see that the world has gone mad. Silver, it has long been understood, has both industrial as well as monetary demand. With the plunge in economic activity of all kinds due to the response to the coronavirus, the industrial component of silver demand is drastically reduced.
As an aside, we feel compelled to say that many lives will be lost by

So, the stock market has dropped. Every government in the world has responded to the coronavirus with drastic, if not unprecedented, violations of the rights of the people. Not to mention, extremely aggressive monetary policy. And, they are about to unleash massive fiscal stimulus as well (for example, the United States government is about to dole out over $2 trillion worth of loot).
The question on everyone’s mind is what will be the consequences?
The standard analysis is that governments will print massive amounts of money. And, this will, of course, cause massive inflation (i.e., skyrocketing consumer prices). There’s just one problem with this analysis.
Reality.
One price to look at is crude oil. Crude oil is now so cheap, you’d have to go back as far as

“The Medievals were smarter than most people think,” says Dr. Michael Mus. “I mean, sure, they tortured people for believing that the sun was the center of our solar system, and they burned witches at the stake. But they knew a thing or two about gold.”
Picture of Dr. Michael Mus
Dr. Mus is working to perfect a method of turning lead and other base metals into gold. He says he is so close, that he will only need one more grant from the King government. Then he says, making the process a commercial success will of course require more money.
Details are sketchy at this point, though Dr. Mus says that his process is very technical.
According to a research report from AgN Aurmo, Mus’ invention will be worth trillions of dollars. The bank is backing MusGold, and plans

The price of gold dropped $31, and that of silver fell even more by proportion, $2.14. The gold-silver ratio hit a hit of over 126 before closing the week around 119. This exceeds the high in the ratio last hit in the George H.W. Bush recession.
Last week, we were warming up to silver, if not recommending it. We said:
“While we would not recommend betting on silver with leverage at this moment, we certainly would not be short silver right now. If you don’t own any, this looks like a good time to buy some. If you have some, you could do worse than buying more here.
…
That said, the Monetary Metals Gold:Silver Ratio Fundamental shows the fundamental as high or higher than the market ratio.
…
This should be watched for a turn. A historic opportunity is coming.”
We

Escribo esto el 18 de marzo, después de haber visto un cambio de 180 grados en la forma de pensar sobre las enfermedades contagiosas. Anteriormente, poníamos a los enfermos en cuarentena y respetamos el derecho de los sanos a seguir con sus vidas. Ahora estamos al borde de la ley marcial. En nuestro afán por combatir el coronavirus, estamos cerrando los viajes, las reuniones públicas, los restaurantes, etc.
Así es como se ve un pánico masivo.
Sin mencionar que ya está causando un daño económico masivo. La economía ya se estaba tambaleando. El falso boom estimulado por una década de metanfetaminas monetarias probablemente se estaba derrumbando incluso antes del virus. Y entonces el gobierno comenzó a cerrar industrias enteras: viajes aéreos, hoteles, deportes,

We got hate mail after publishing Silver Backwardation Returns. It seems that someone thought backwardation means silver is a backward idea, or a bad bet. “You are a *&%#! idiot,” cursed he. “Silver is the most underpriced asset on the planet,” he offered as his sole supporting evidence. He doesn’t know that backwardation means scarcity, not that a commodity’s price is too high.
Since we wrote that on March 2 (our Reports are always based on the prior Friday’s close, in this case February 28), the price of gold and most especially silver has dropped. Silver was $16.67, and now it is $14.75. This is a drop of 11.5%. It is all the more scary when you realize that this drop occurred entirely over two days: Thursday and Friday this week.
The price action in gold was

Most people assume that the central bank prints money when it buys bonds. They further assume that this increase in the quantity of money causes an increase in the general price level. And, this leads them to assume that the value of the money is 1 / P (P is the general price level). Therefore, when the central bank prints money to buy bonds, it is diluting the value of the money held by everyone—in proportion to the amount printed divided by the total amount in circulation.
This is not even wrong. So let’s look at how it really works.
Of course, as we’ve said many times before, the dollar is not money. It is irredeemable credit. And so is the Treasury bond. The difference between the currency and the bond is maturity. The currency is credit of zero duration and

The big news this week was the drop in the prices of the metals (though we believe that it is the dollar which is going up), $57 and $1.81 respectively.
Of course, when the price drops the injured goldbugs come out. We have written the authoritative debunking of the gold and silver price suppression conspiracy here. We provide both the scientific theory and the data. So we won’t say anything more about it today.
On 17 Feb, we wrote about the widening bid-ask spread in the spot markets for gold and silver. The spread in silver was around 2 cents (up from where it had been humming along at ½ cent until about a year ago), then just over 1 cent. By mid-February, it was over 1.5 cents.
We said:
“We would expect widening spreads to cause / be caused by lower volumes.

The price of gold rose $14 and the price of silver fell $0.07. The gold-silver ratio rose further with this price action.
Welcome to our new Gold and Silver Market Report, or “Market Report” for short. We are separating this from the economics essay, which was attached for many years. As they used to say in many toy commercials of yore, “batteries sold separately”—or in this case essays.
The new Market Report is going to depart from the familiar old format of four charts (gold and silver prices, gold-silver ratio, gold basis, and silver basis). We are going to look at whatever we think is interesting each week. And usually the basis.
We apologize for skipping several weeks. We can only say that we are very busy developing the business of offering a yield on gold.

We apologize for not posting articles during January. We have been busy, and going forward will publish a separate Market Report every Monday morning plus macroeconomics essays later in the week, as time permits.
This is our annual analysis of the gold and silver markets. We look at the market players, dynamics, fallacies, drivers, and finally give our predictions for the prices of the metals over the coming year.

Introduction
Predicting the likely path of the prices of the metals in the near term is easy. Just look at the fundamentals. We calculate the gold fundamental price and the silver fundamental price (methodology described below) every day, and our data series goes back to 1996.
Here is a graph showing the gold fundamental for three years.

Gold

GDP – A Poor Measure of “Growth”
Last week the prices of the metals rose $35 and $0.82. But, then, the price of a basket of the 500 biggest stocks rose 62. The price of a barrel of oil rose $1.63. Even the euro went up a smidgen. One thing that did not go up was bitcoin. Another was the much-hated asset in the longest bull market. We refer to the US Treasury.
The spread between Treasury bonds and junk bonds narrowed this week. It is now close to its post-crisis low. While many would cheer this cheapening of the cost of credit to below-investment-grade issuers, we note two things.
One, this enables them to borrow more to spend more and thus add to GDP. Two, this is not a recommendation of forcing down the cost of credit to marginal borrowers. It is a damning

Dear Mr. Taft:
I eagerly read your piece Warriors for Opportunity on Wednesday, as I often do about pieces that argue that capitalism is not working today. You begin by saying:
“Financial capitalism – free markets powered by a robust financial system – is the dominant economic model in the world today. Yet many who have benefited from the system agree it’s not working the way it ought to.”
Leaving aside that our financial system is not robust—the interest rate is collapsing, and the debt is growing exponentially—we do not have capitalism. We have licensure of most professions, and regulation of nearly every productive activity. We have government-owned roads, airports, harbors, radio spectrum, trains, and schools. This last item is Plank #10 from the Communist

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
What the heck did John Maynard Keynes mean by saying this? Overturning the existing basis of society?! Let’s begin by stating something that is both obvious and unpopular. We are living in days that could be called the end of an epoch. The signs are everywhere, and becoming more blatant.
Wealth Inequality
The Left focuses on wealth inequality, because they see one of the signs. The falling interest rate seemingly benefits those who own assets (it does not actually benefit anyone), particularly

The basic idea behind the Quantity Theory of Money could be stated as: too much money supply is chasing too little goods supply, so prices rise. We have debunked this from several angles. For example, we can use a technique that every first year student in physics is expected to know. Dimensional analysis looks at the units on both sides of an equation.
Money supply is a quantity, a stocks, i.e. dollars or tons in the gold standard. Goods supply is a quantity per year, a flows, i.e. tons / year. You cannot compare tons to tons / year. The attempt is meaningless.
We have noted that if a bank sells a Treasury bond, it is not going to spend the cash on a big bender in Vegas. And we discussed the fact that a dollar is not consumed in the transaction, unlike the