Precious Metals Supply and Demand

Fundamental Developments

There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30.

Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.

Gold and Silver Price

Gold and silver prices in USD terms (as of last week Friday) - 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. The ratio was all but unchanged.

In this graph, we show both bid and offer prices for the gold-silver ratio. If you were to sell gold on the bid and buy silver at the ask, that is the lower bid price. Conversely, if you sold silver on the bid and bought gold at the offer, that is the higher offer price.

For each metal, we will look at a graph of the basis and co-basis 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 co-basis in red.

Gold:Silver Ratio

Gold-silver ratio, bid and offer - Click to enlarge

Gold Basis and Co-basis and the Dollar Price

Here is the gold graph (Oct contract), this time showing the trend since mid April.

Gold Basis and Co-basis and the Dollar Price

October gold basis, co-basis and the USD priced in milligrams of gold - Click to enlarge

Gold Basis Continuous

This is the October contract, which is under selling pressure (pushing basis down and co-basis up). However, there has been a significant drop in the dollar (the mirror image of how most people think of it, a rising gold price). Below is the continuous gold basis chart for comparison.

Gold Basis Continuous

Gold, continuous contract basis and co-basis and the USD priced in milligrams of gold - Click to enlarge

Gold Fundamental Price

There is not much change in the continuous co-basis, as price rises (and as you can see above, the October co-basis rises along with it).

The co-basis of -0.5% for October or -1.3% in continuous contract terms is not exactly screaming shortage. Yet the refusal of the co-basis to drop in the face of all this gold buying is. It feels a bit like a stealth bear market in the dollar (i.e., a stealth bull market in gold).

Our calculated Monetary Metals fundamental gold price was up $22, to $1,379 as of Friday.

Gold Fundamental Price

Gold, fundamental price vs. market price (bid; chart includes Monday’s move) - Click to enlarge

Silver Basis and Co-basis and the Dollar Price

Now let’s look at silver.

In silver, we see a rising basis and falling co-basis in the December contract (mirrored by the continuous silver basis chart).

Silver Basis and Co-basis and the Dollar Price

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

Silver Fundamental Price

Our calculated Monetary Metals fundamental silver price increased $0.25 to $17.89.

Silver Fundamental Price

Silver: fundamental vs. market price (bid) - Click to enlarge