To those who believe gold and silver are money (as we do) the rising price of silver may seem right as rain. Why shouldn’t the dollar go down? It’s a rubbish currency, and any moment everyone else will realize it. And therefore it should go down in anticipation of that, right?
What Is a Dollar Worth?
One cannot understand the value of the dollar in terms of its quantity (we have written so much material on this topic, it could probably fill a book). Nor with the assertion, often made in dark corners of the Internet, that the dollar is held up by faith, and as soon as the people discover it is backed by nothing then it will go to its intrinsic value of zero. In reality, the dollar is held up by the struggles of the debtors, who work overtime to produce goods and services to exchange for dollars.
Price Is Set at the Margin
And they can trade based on momentum too. It is a common feature that when the price of something, e.g. silver, is rising, more traders pile on to what they see as easy money (i.e. dollars). So momentum is practically guaranteed to overextend a price move beyond the current valuation. Clearly, this happened in 2011. Silver hit nearly $50, which means the dollar fell to about 633 milligrams of silver.
Some Speculators Hold
Now add one more factor to the mix. Many dollar-thinkers only buy gold and silver in the hopes of riding it to a higher price. They bet on money, only as a means to an end. They want more purchasing power. Some of them don’t like to sell at a great loss. They bought with great promises of silver to $200, and gold to $5,000. But the opposite happened. So they stubbornly held.
Saudi Oil Bombed
Rising risk means a lower dollar. And we have to be clear what we mean here. Most people refuse to measure the dollar in terms of gold. Instead, they prefer to use either consumer goods (which are themselves measured in dollars)—so called purchasing power. Or else they use the dollar derivatives such as euro and pound.
Zero Interest—Food or Poison
Whatever benefits Trump thinks to obtain from zero interest rates, including seemingly national prestige and of course stimulating the stock market, if not the economy, we should keep in mind the zero-interest vision of John Maynard Keynes. Keynes saw it as a way to “euthanize” the “rentier” (i.e. kill savers) and ultimately to overthrow the capitalist order.
Like breaking a window, it may boost GDP. This is not a recommendation for breaking a window or the interest rate. It is a damning indictment of GDP as a measure of the economy, as it adds capital consumption.
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). The ratio rose again this week.
Here is the gold graph showing gold basis, cobasis and the price of the dollar in terms of gold price.
The October contract is very close to First Notice Day, yet the cobasis is still well under zero. No backwardation here, not even temporary backwardation. The gold basis continuous does not show the rise that expiring-October has.
The Monetary Metals Gold Fundamental Price fell $27, to $1,498.
The Monetary Metals Silver Fundamental Price dropped 73 cents, to $17.99.
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