The Chairman's Curse - Precious Metals Supply And Demand

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Includes: AAAU, AGQ, BAR, DBS, DGL, DGLD, DGP, DGZ, DSLV, DZZ, GLD, GLDI, GLDM, GLDW, GLL, IAU, IAUF, OUNZ, PHYS, PSLV, QGLDX, SGOL, SHNY, SIVR, SLV, SLVO, UBG, UGL, UGLD, USLV, USV, ZSL
by: Keith Weiner
Summary

The price of gold went up two bucks, while that of silver fell ten pennies.

Silver is now about a buck higher than its Oct-Nov trading range.

Oddly enough, gold seemed to like the less accommodative Mr. Powell better.

The Monetary Metals Gold Fundamental Price rose $23 to $1,344.

The Monetary Metals Silver Fundamental Price rose 9 cents, to $16.00.

Something Odd is Happening

The price of gold went up two bucks, while that of silver fell ten pennies. Something is odd about how the metals have traded. Back when the market thought that the Fed was tightening, the prices of gold and silver were rising. Silver is now about a buck higher than its Oct-Nov trading range.

A timeline of brief bubble trouble followed by bubble restoration via Hedgeye. It starts in early December (upper left corner) when Santa refuses to provide rising stock prices… Collective Wall Street yammering soon ensues and the socialist central planning agency at the center of our so-called market economy is begged to intervene… After consulting its crystal ball, it decides to make a "coo" sound in late December (lower right corner), and presto - everything is fixed!

Oddly enough, gold seemed to like the less accommodative Mr. Powell better. This does actually make sense on one level, but one would normally expect gold to like the prospect of a retreat from a tightening cycle even better. We do have some ideas on that topic, which we plan to discuss in an upcoming Acting Man gold update. [PT]

But no sooner does Fed Chairman Powell say he is "listening" to the market - which is taken as a hint that he will stop tightening, if not ease a bit - than the prices of the metals stop rising.

Contracting money supply à rising prices of gold and silver.

Expanding money supply à softer prices.

That said, the fundamental prices of both metals - a calculation we make every day - has been rising since Nov 26. So far, the listening and talking of Powell has not pushed the fundamentals down.

Though it should be noted that the fundamental gold price is just recovering to its range from 2017. And the silver fundamental silver price is almost back to prior levels. We will look at these graphs below.

Fundamental Developments - Fundamental Prices Firmer Again

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 a bit this week.

Gold-silver ratio

Here is the gold graph showing gold basis, 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

Keep in mind that this is the February contract, which is under selling pressure as it approaches expiry. Though the gold continuous basis rose a bit too. Here is the graph of the fundamental gold price for 1,400 days.

Fundamental gold price according to the Monetary Metals formula vs. market price (yellow line)

The Monetary Metals Gold Fundamental Price rose $23 to $1,344.

Now let's look at silver.

Silver basis, co-basis and the USD priced in grams of silver

As the price of silver fell a bit, the co-basis (scarcity) rose a bit. The Monetary Metals Silver Fundamental Price rose 9 cents, to $16.00.

Here is a graph of the fundamental silver price.

Fundamental silver price vs. market price (light gray line).

Charts by: Monetary Metals

Chart and image captions by PT

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.