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Gold And Silver Markets Start To Normalize

Keith Weiner profile picture
Keith Weiner


  • The extraordinary bid-ask spreads and bases are coming down, in both gold and silver.
  • The reason may surprise you.
  • Gold as an investment.

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 not back to its pre-2020 normal. Silver appears to have rolled over, but at $0.04 its bid-ask spread is still quite elevated.

Below is a graph of the gold basis continuous (the June contract shows the same thing).

As with the bid-ask spread, the basis has come back down and is almost normal. Here is a graph of the silver basis continuous.

Like gold, the basis had become quite elevated. Like gold, the basis has come down. Unlike gold, the silver basis is still elevated, though not extraordinarily so anymore.

So, what does all this mean?

Dollar Supply and Demand

We think it means that the Fed's massive asset-buying program has had its intended effect (it will have a number of other effects, as well). The Fed has bought about $2.5 trillion worth of bonds, which has grown its balance sheet by 60%. This is the stuff of madness. See the graph of the Fed's assets below.

The change

This article was written by

Keith Weiner profile picture
I'm founder of the Gold Standard Institute USA in Phoenix, Arizona, and CEO of precious metals fund manager Monetary Metals. I created DiamondWare, a technology company which I sold to Nortel Networks in 2008.

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Comments (11)

Aftermarket equity it will be very disappointing to see gold rate dropping, but with this article, it is giving hope to investors like us who have invested in digital gold through Augmont app. Thank you for this piece of information it is very useful.
Hi! You suggest demonetization or being out of favour with investors as two reasons for silver being cheap relative to gold.How does industrial usage of silver factor?
@Keith Weiner

"The Fed will be able to get away with this for so long as gold bids on the dollar. And the high basis is proof that this bid is very strong for now."

Do I correctly understand as such:

The US central bank can continue its asset purchases so long as those holding gold (either paper claims or real physical) have a need to sell that gold to obtain US dollars, because nearly everything in the world is priced in US dollars.

Is that correct?
@Keith Weiner

"Like gold, the basis had become quite elevated. Like gold, the basis has come down. Unlike gold, the silver basis is still elevated, though not extraordinarily so anymore."

Forgive my ignorance, but the word "basis" is frequently used with no definition.

What does "basis" mean, as used throughout this article?

Thank you.
"As an aside, gold is not an investment."

"Investing in gold or gold investing are the ways to opt out."

So which is it? An investment or not?
DavPoss profile picture
Well documented and thought out article, only that as an investor in gold and gold miners, it is not at all clear to me the conclusions. It seems that gold is only starting a career upwards, or am I wrong? Thanks and regards
Markets are thrown are often in disequilibrium due to external shocks. My hypothesis regards the valuation linkage between different assets -gold-sliver -bond yields- commodities-currencies is in a current phase of pause before the key players make their move:
Underlying 50-50% tension has made for tight game: the first movers will cause a cascade either way. One clue is to watch the $ US echange rates: Switzerland France is now predominant against all currencies: incidentially the only currency which is gold backed..
US $ is now worth only 97% of one Swiss Franz:
Don;t blink , keep sharp focus on the linkage. the first element that implodes up or down can guide the adept asset player as to the next move to make..
Those who have excess liquidity will move the markets first, then the leveraged have-nots that follow the leaders will follow, then the herd will come crashing.
Watch volume levels .. prices can lead but without volume there is no breakout..

5/5 MQ...

I believe the Swiss no longer back any portion of the Swiss Franc with gold.
Wow a reasonable article on gold & silver on Seeking Alpha?!?
Now I've seen everything
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