What Are The Supply & Demand Fundamentals Of Gold Telling Us? (GLD)

From Keith Weiner: There is an interesting feature of our very marvel of a modern monetary system. We have written about this before. It sets up a conflict, between the perverse incentive it administers, and the desire to protect yourself in the long term.

Consider gold. Many people know they should own it. They know that governments are profligate borrowers (even if they don’t understand the diminishing returns of borrowing, aka Marginal Productivity of Debt). They know that governments haven’t got the means or intent to repay. They realize that the dollar (and euro and pound, etc.) are just slices of government debt. And they don’t want to be creditors to government.

Yet, buying gold seemingly does nothing for them. Unless its price is rising–which it clearly isn’t at the moment–what good is it? And, they ask a more pointed question. If governments are all heading toward default, why isn’t the price of gold rising? Wouldn’t there be a mad rush for gold as government paper is repudiated? Yes, of course, when that repudiation happens. But quoth Aragorn, “today is not that day.”

Today, why should there be a gold rush? The rushers (aka the herd) want to jump on whatever asset is going up. Not so much whatever asset promises to protect them from Aragorn’s “not that day”.

Further, if some do rush in and push the price up, then a different crowd springs into action. Those who have realized a gain in their purchasing power. They sell.

Today, we must all seek to generate returns however we may. And those returns are dollars, to pay for Budweiser and the F-150 payment, or Cristal and Gulfstream 650s, as the case may be.

We know that at some point in the future, not tomorrow and not this year, but some point, the time for being a government creditor will over. Their unpayable debt will come tumbling down, and with it the currencies back by this debt.

But today is not that day. Today, we want to know when gold will have another run up. The price hit a high of $1365 in early April. Now it’s over $140 lower. That’s no fun (even for us).

We have documented the epic rise in the gold fundamental price (which continued to rise through the end of April) and then collapse back in line with the longer-term trend. Look at this graph:

Since the low price hit around the start of 2016, the black line (fundamental price) shows some cyclicality. And, we read it as a generally rising trend. Certainly the bottoms (if indeed the bottom was hit on July 19) are each higher than the last (except Dec 2016).

Below, we will provide a picture of the changing gold and silver supply and demand pictures. 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 didn’t move a lot, and neither did the basis.

The Monetary Metals Gold Fundamental Price went down $7 this week to $1,309.

Now let’s look at silver.

Silver has basically the same picture.

The Monetary Metals Silver Fundamental Price fell 50 cents, to $16.72.

The SPDR Gold Trust ETF (GLD) GLD has declined -6.53% year-to-date, versus a 5.53% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 34 ETFs in the Precious Metals ETFs category.

This article is brought to you courtesy of Monetary Metals.