by Pater Tenebrarum, Acting Man:

FRN Muscle Flexing

Shh, don’t tell the dollar-paradigm folks that the dollar went up 0.2mg gold this week. Or if that hasn’t blown your mind, the dollar went up 0.01 grams of silver.

It’s less uncomfortable to say that gold went down $10, and silver fell $0.08. It doesn’t force anyone to confront their deeply-held beliefs about money. But it does have its own Medieval retrograde motion to explain.

Even the freaking leprechaun is now offering government scrip…  this really takes the cake. [PT]

How the #$%&! could gold possibly be going down?!? Next week, we will dive deeper into some analysis of what could be driving gold down in recent months.

In the meantime, let’s just say that we observe two facts. One, the market price of gold has been coming down since the second half of April. It has dropped about $135 since then. Two, our calculated fundamental price, based on the basis, had been rising through late April. Since then, it has come down about $220.

Whatever the cause may be, something real has happened. It is up to market participants to deal with it. Or else they can trade their money for Federal Reserve Notes, in the belief that this would eliminate all risk…

Fundamental Developments

We will look at an update of the supply and demand picture. But first, here is the chart of the prices of gold and silver.

Gold and silver priced in USD

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio for an explanation of bid and offer prices for the ratio). It fell a hair last week.

Gold-silver ratio – mildly lower on the week

Here is the gold graph showing gold basis,  co-basis and the price of the dollar in terms of gold price.

Gold basis, co-basis and the USD priced in milligrams of gold

As the price of the dollar moved up this week (we don’t need to say that this means the price of gold, measured in dollars, fell do we?) we see a little bit of rising scarcity in the co-basis for the October contract. However, that is not true for farther-out contracts.

The  Monetary Metals Gold Fundamental Price went down another $5 this week to $1,304.

Now let’s look at silver.

Silver basis, co-basis and the USD priced in grams of silver

In silver, the near contract shows no change in scarcity. It’s not all that surprising, given that the price didn’t move much. However, it’s somewhat surprising as the near contract happens to be September and we are nearing First Notice Day.

There is already selling pressure on this contract, which will tend to push its price down and hence its basis down and co-basis up (basis = future – spot, and co-basis = spot – future).

Read More @ Acting-Man.com