Monetary Metals Supply and Demand Report: 24 Nov, 2013

Back on October 27, we said, “this is probably not the gold price breakout you’re looking for.” Gold was $1352 and silver was $22.54. Now, the gold price has dropped $110 to $1242 and silver dropped $2.69 to $19.85. The silver price is down 12% since then. We prefer to say that the dollar rose [...]

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4 replies
  1. Freeman says:

    Riddle me this – there seems to be a contradiction in the general supply/demand relationship b/t the USD and gold/silver, (notwithstanding what is revealed by the basis/cobasis) i.e., unlimited USD’s and yet one dollar buys more and more gold. The USD standing as the perceived currency safe haven for the great unwashed seems to play a role in this. Does your analysis denominated in other currencies show anything interesting?

    • Keith Weiner says:

      Thanks for your question Freeman.

      I argue that the gold price is not a function of the quantity of dollars, yen, euros, etc.

      As to the basis, it looks the same in every currency. This is because at any given moment in time, there is an FX rate between the dollar and, say, the euro. So that will give you the euro bid and ask on spot and future gold prices. The basis is the carry expressed as an annualized percentage; the cobasis is the decarry as an annualized percentage.

      • JR says:

        Yet you argue the gold price is a function of the quantity of gold, in your case a large quantity compared to annual production. You seem incapable of seeing the contradiction.

        But Menger said so, so it must be right huh? Couldn’t be a load of bullshit or anything?

        • Keith Weiner says:

          JR: Please be courteous in this venue.

          I do not argue that the gold price is a function of its quantity or stocks to flows. In fact, I do not argue that gold ought to be measured in dollars in the first place. I argue that price means an objective measurement, which means measured in terms of money, which means gold. At the top of this article, I argue that the price of the dollar is around 25mg of gold, and this is a more accurate way of saying it than to say that gold is $1242.

          I do not argue that gold’s price or its value is either proportional to its quantity, or that its price or value are inversely proportional.

          I do argue that gold’s bid-ask spread, low volatility, and constant or near-constant marginal utility are related to its high stocks to flows.

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