• 1 hour Private Firms Spent Record $93 Billion On Natural Resources
  • 3 hours Tesla Cuts Full-Time Employees To Keep A Lid On Spending
  • 19 hours Remaining Private Is Becoming More Expensive
  • 1 day Why Are Solar Investments Plummeting?
  • 2 days Workers Walk A Tightrope As Shutdown Puts Paychecks On Hold
  • 2 days Key Indicators Suggest A Recession Is Closer Than We Thought
  • 3 days Palladium Surpasses Gold As Demand Continues To Rise
  • 3 days Is Another Gold Rally On The Horizon?
  • 4 days Most Crypto Investors Don’t Know This Tax Loophole
  • 4 days How Tech Is Decentralizing The Energy Industry
  • 4 days Dissecting Europe's Massive Tennis Match-Fixing Scandal
  • 4 days This Gold Deal Could Be A Boon For The Mining Industry
  • 5 days 5 Companies That Could Win Big As The U.S. Legalizes Sports Betting
  • 5 days May Survives No-Confidence Vote Despite Huge Loss On Brexit Deal
  • 5 days U.S. Trade Deficit With China Grows To Record High
  • 5 days Big Oil Doubles Down On Blockchain Tech
  • 5 days What Top Financial Analysts Are Saying About Brexit
  • 6 days Billion Dollar Opportunity In The World’s Most Exciting Sector
  • 6 days Cash Is Now A $3-Trillion Safe Haven Bet
  • 6 days How Advertisers Are Forced Into Politics
The Corporate Buyback Bubble Is Bursting

The Corporate Buyback Bubble Is Bursting

Corporate stock buybacks have surged…

Saudi Stocks Plummet As Foreign Investors Bail

Saudi Stocks Plummet As Foreign Investors Bail

The death of journalist Jamal…

  1. Home
  2. Markets
  3. Other

Fed Rate Hike Causes Gold Price Drop

The price action was not what most of those in the gold community hoped for (or predicted). The price of gold dropped another $24 and that of silver nearly a whole dollar.

The big news of course is that the Fed hiked rates another 25 basis points. So far, stock market speculators don't seem to care. They should. The present value of all future earnings depends on the interest rate, and every upwards tick is a substantial downward revision of earnings in out years. However, the bull is so strongly entrenched that it may take a while for this to sink in. We also think of the companies who were borrowing to buy their own shares, and for that matter borrowing to pay dividends. At what interest rate do those two trades stop?

Are higher interest rates bad for gold and worse for silver? Are we close to capitulation in the metals? Readers of last week's Report know that we put the fundamental prices of gold and silver at $1,190 and just over $15. Where are they now after this week's action?

Below, we will give an update on those fundamental prices. But first, here's the graph of the metals' prices.

The Prices of Gold and Silver

Prices of Gold and Silver

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

The Ratio of the Gold Price to the Silver Price

Ratio of the Gold Price to the Silver Price

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

Gold Basis and Cobasis and the Dollar Price

Last week, we said the dollar was shooting the moon. It was then 26.8 milligrams gold. Now it is 27.4, and we had to expand the graph to see the new height.

When speculators sell off their positions, the red cobasis line (i.e. scarcity of gold) moves with the dollar. That is not, however, what we saw this week. Gold became less scarce at $1,135 on Friday than it was at $1,159 a week ago.

That is the fact, and we call it as we see it. Fundamental price is still over the market, just under $1,160.

What makes this both exciting and challenging is that the price at which metal would clear keeps moving, along with the speculators' effect on the quoted market price. This week, real metal came to market. This is what caused the price drop.

Now let's look at silver.

The Silver Basis and Cobasis and the Dollar Price

Silver Basis and Cobasis and the Dollar Price

In terms of silver, the dollar rose even more, from 1.85 to 1.94 grams. Unlike in gold, the silver cobasis did rise though not a lot.

And our calculated fundamental price moved up to $15.50.

 

Back to homepage

Leave a comment

Leave a comment