Gold and Silver Supply and Demand Report

By Keith Weiner of Monetary Metals

When the government expelled gold from the monetary system, it took away gold’s utility

The prices of the metals didn’t change much this week.

We thought we would take this opportunity to quote Warren Buffet. His comment at Harvard in 1998 earns him the [spite] of the gold community.

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

We don’t care much for his conclusion either: no need to own gold, nothing to see here about our failing monetary system, move along folks. However, he does have a point.

When the government expelled gold from the monetary system, it took away gold’s utility. Gold does not pay interest today. That’s why most people want nothing to do with it. And it’s also why the gold community is so focused on the price of the metal. Other than protect you from the End Of The World As We Know It, gold is a chip for betting in the speculation casinos.

Without interest, it cannot circulate as money. Interest is the flow regulator valve. Zero interest means 100% hoarding and 0% circulation.

The concept of utility comes from being able to use something. Money is used for investing and spending—precisely what the government has suppressed since 1933. So what’s left?

Price action.

Read on for the only the only true picture of the supply and demand fundamentals that ultimately drive the price action. But first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver
letter aug 14 prices, gold and silver

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio.

The Ratio of the Gold Price to the Silver Price
letter aug 14, gold-silver ratio

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The Gold Basis and Cobasis and the Dollar Price
letter aug 14 gold and the us dollar

The basis (i.e. abundance) increased a bit this week. However, our calculated fundamental price rose a few bucks.

The Silver Basis and Cobasis and the Dollar Price
letter aug 14 silver and the us dollar

The same exact thing occurred in silver. Slightly growing abundance, but our model shows a slightly higher fundamental price.

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