Monetary Metals Supply and Demand Report: 9 Mar, 2014

Gold went up and silver went down this week. It’s natural for most people to say, “gold went up”, but it’s the most unnatural phenomenon. The dollar is paper scrip issued by the Fed. The fine print tells you that it’s irredeemable, which is like a promise to give you a kilo of sugar that [...]

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6 replies
  1. rowingboat says:

    Thanks again, Keith.
    Can you explain how you determine $1470 neutral gold price please?

    “The cobasis went sideways while the dollar fell (i.e. the price of gold rose). This suggests buyers of real metal, not speculators, led the price action this week. The neutral price of gold went up another twenty-five bucks, to around $1470.”

  2. magnus says:

    We are all waiting for the permanent backwardation to kick in from long contracts an in. But somehow that is not happening. Given that you have almost unlimted resources at your disposal (i.e. Central banks) is it possible to contain (manipulate) the process of permanent backwardation? How would you go about?

    Thanks for a great site!

  3. Keith Weiner says:

    Thanks for all your comments, and kind words.

    Magnus to avoid permanent backwardation you must do one of two things. You must somehow keep people’s faith in the irredeemable dollar. They have been amazingly good at this, and have kept the game going longer than anyone could have predicted in 1971 when it began. Or else you must sell whatever quantity of gold metal demanded by the increasingly skittish markets. This is obviously going to be a short-term game as the flows will be all one-way from central bank vaults to the hoarders.

    Gene: That is a very interesting statement. Did you run the calculation?

    For now, we occasionally offer our neutral price to provide a little more perspective.

  4. danho194 says:

    Hi Keith, I know the following issues was not really the point of this post but if you would like to comment on it it would be interesting to read.

    1. I think that compared to a basket of products (CPI) the price of the dollar has been more stable than gold the last years. Over long time the dollar has a steady decline but gold has had bigger short term volatility compared to CPI. If gold was used as currency that might not be the case but in the current environment I think this is the case.

    2. Although the dollar is not redeemable on demand, the FED promices to not let it fall more than 2% per year compared to CPI. Most years they keep this promice and they have assets of value like bonds (the value can be debated but the market still values it) and even gold to buy dollars in order to keep that promice. This will keep a steady floor on the price of the dollar as long as the backing to defend the dollars value is sufficient. Do you agree with this?

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