The price of gold (and silver) was on a tear in April and May. Then some sideways action. And then this week, thud.

On Twitter, a popular meme is that the banks smashed the price by selling futures contracts, though there was no selling of gold bars. Let’s just say that if the price of an August contract fell by $120, while the price of a gold bar held steady, there would be a backwardation of around 40%!

If this occurred, we would hardly be alone on the rooftops, bellowing about this.

For a picture of reality, let’s look at the gold basis chart.

For those that are new to the Supply and Demand report, we recommend you start here to get acquainted with our methodology and terms.

Note the low in the basis (i.e. abundance) / high in the cobasis (i.e. scarcity) on March 8. This coincides with the high in the price of the dollar, at 18.43 milligrams gold (i.e. the low in the price of gold).

From that point, until last week, there is a steady rise in the basis / fall in the cobasis. In other words, as the price of gold is rising, it is becoming more abundant to the market. This is normal market action.

Then, the dollar goes vertical over a few days, from 16.45mg to 17.51mg gold on Friday.

And with this rise in the dollar (i.e. drop in the gold price), we see gold becoming substantially less abundant to the market. From a basis of 0.57% on June 7, the indicator has dropped to 0.39%.

Here’s silver.

The basis dropped from 1.3% to 0.64%, a larger move in absolute terms and also proportionally.

We are aware of the sarcastic phrase “nothing to see here, move along folks”. We may have used it in prior Reports. However, today, it’s basically true.

Yes, there was a big price move and a big basis move. But the basis moved exactly as the theory predicts—and countless Reports over the last decade have shown. Price drops, and metal becomes scarcer. Price rises, and metal becomes more abundant. In other words, traders are sensitive to the price.

The Bottom Line: The recent price moves in gold and silver did not indicate any change in the underlying fundamentals.