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Gold to Remain Depressed, Or Shoot Up $100 By Tomorrow Morning?

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Just because we have been calculating a fundamental price for gold that is well over a hundred bucks above the market price, does not mean that the market price has to spike up $100 tomorrow morning. It might—and we certainly would not short gold when the market is in such a state. But as the market has proven since August, it might remain depressed for quite a while.

Submitted by Keith Weiner, Monetary Metals

It is worth taking this time to review something that, based on some reader comments, may be the source of some confusion. The Monetary Metals fundamental price is measuring just that, the fundamentals. As with stocks or any other asset, our centrally banked, government-distorted markets can experience price volatility and even prices that deviate from the fundamentals for a long period of time. Just because we have been calculating a fundamental price for gold that is well over a hundred bucks above the market price, does not mean that the market price has to spike up $100 tomorrow morning. It might—and we certainly would not short gold when the market is in such a state. But as the market has proven since August, it might remain depressed for quite a while.



We have one other comment on this topic. For the longest time, we were calling for the silver price to drop sharply. It stubbornly did not, or when it did drop it would soon recover. We received some hate mail, and a lot more skepticism. In the end, it turned out that we were right and all the silver bulls were wrong. The silver price hit our lowest target, with a 13 handle.

We will continue to show our data, discuss our theory, and call ‘em like we see ‘em. Speaking of which, read on for the only true look at the fundamentals of gold and silver…

But first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver

We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can’t tell them whether the globe, on net, is hoarding or dishoarding.

One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.

Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual…