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IPFS News Link • Gold and Silver

Rising Fundamentals for Gold and Silver

• https://www.zerohedge.com, By Keith Weiner

The Different Theories on What Moves Gold and Silver Prices

For example, the Quantity Theory school attempts to relate the quantity (or change in quantity) of dollars, to each commodity. Generally, this theory predicts rising prices based on the reasoning of "more dollars chasing the same or fewer ounces of gold and silver." The problem is that the new holders of these new dollars are not necessarily bidding up gold and silver (our thorough rebuttal to this is here).

Other schools attempt to compare mine production with industrial and jewelry demand. Or attempt to hold up a famous buyer of metal, while ignoring the thousands of not-famous sellers who sold the metal to said famous buyer. We should not make too much ado over a move of metal from one corner of the market to another (as we'll discuss below).

Gold and Silver Fundamental Analysis: Contango, Backwardation and the Basis

None of these schools describes the fundamentals of the gold and silver markets, much less predicts the price moves. To look at the fundamentals, one must look at the gold and silver bases. The basis, to oversimplify slightly, is futures price – spot price. This shows the fundamentals, because a market in scarcity (as oil has been recently) has a lower price for future delivery than for immediate delivery. In other words, buyers prefer their oil now rather than later. And this preference is expressed as a higher price for delivery now, vs. later. This condition—called "backwardation"—is a signal to everyone warehousing the commodity to de-carry it. That is, to sell the commodity in the spot market and buy back their position via a futures contract. They pocket a small but risk-free profit for doing so.