Examining The Fundamentals Of Gold And Silver (GLD)

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June 12, 2018 6:20am NYSE:GLD

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From Keith Weiner: The prices of gold and silver rose five bucks and 37 cents respectively. Is this the blast off to da moon for the silver rocket of halcyon days, in other words 2010-2011?


We will look at the basis signals in a bit. But for now, we want to comment on the absolute moribund state of the retail market. Coin and bar premiums are near or at long-term lows. That means buyers are not necessarily buying new product from the mints, but rather there is plenty of “used” product floating around the market from other retail customers who are selling.

Every dealer we talk to acknowledges volume is down too. So not only is there less revenue, but the margin on that revenue is smaller. Keith is here in San Antonio for the International Precious Metals Institute conference, and though it’s his first time attendees keep saying it’s a smaller crowd.

This is not an environment for a Lift Off Event. It is not bullish, except in the way that before the bull market often must come capitulation. This smells like retail capitulation.

Below is the only true picture of the gold and silver fundamentals. But first, here is the chart of the prices of gold and silver.

 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 fell this week.

Here is the gold graph showing gold basiscobasis and the price of the dollar in terms of gold price.

The price of gold rose (which is really the falling price of the dollar, shown in green). As the price rose, the scarcity fell (i.e. cobasis, the red line). Nothing unusual about this.

The Monetary Metals Gold Fundamental Price fell $35 this week to $1,351. The fundamental has almost completed its full round trip, as it went above (way above) its long-term range and now falling back into it. Here is a graph showing the fundamental for the last 3 years.

Now let’s look at silver.

The July silver cobasis fell from -0.4% to -1.2%. The price of silver rose a lot more than did gold.

The silver basis continuous shows a much smaller move. It’s a little odd, as we are now well into the time when futures speculators are rolling their July contracts to September. This should be pushing down the contract price, which pushes up the cobasis. We normally see temporary backwardation as contract expiry approaches. This week, the move in the silver cobasis goes opposite to this. Obviously, much of the buying in silver was in futures, and most of that was in the July contract. Why would a speculator buy a July contract, that he would only have to roll in a few weeks? Perhaps he is not thinking of holding that long? We don’t know, we are guessing.

The Monetary Metals Silver Fundamental Price fell 38 cents to $17.13.


The SPDR Gold Trust ETF (GLD) fell $0.23 (-0.19%) in premarket trading Tuesday. Year-to-date, GLD has declined -0.34%, versus a 4.80% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 33 ETFs in the Precious Metals ETFs category.


This article is brought to you courtesy of Monetary Metals.


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