We’ve gone through a succession of events and processes that were supposed to make gold go up. The following list is by no means exhaustive:

1. Quantitative Easing
2. Bernanke’s Helicopter Drops
3. Janet Yellen’s Keynesianism
4. Obama’s Deficits (US government debt is now a hair away from $20,000,000,000—and that’s just the little part of it they put on their balance sheet)
5. The election of Trump
6. The Italian Referendum (current as we write this)

Each has been good for a little blip that has been forgotten in the noise. We are seeing articles now that have moved on to the next old-new story. It seems that Trump is going to spend a lot on infrastructure. This will require massive deficits. But the market will distrust that the government can pay. So we will see a twin sell off of the US dollar in terms of other currencies, and Treasury bonds in terms of dollars. This will cause the mases to Discover Gold and the gold price is going to skyrocket.

We get it. Everyone thinks that interest rates are going up because inflation because more spending. Actually not quite everyone—our view is that the drivers which have caused the interest rate to fall for 35 years are still in full, deadly effect. Nor the folks who are bidding on junk bonds, or stocks for that matter.

But most everyone. Rates have to go up, because they’re lower than ever before history. Right?

And if rates are going up, then so is gold, right?

The Treasury bond is payable only in US dollars. The US dollar, which is the liability of the Federal Reserve, is backed on by Treasurys. It’s a nice little check-kiting scheme. But besides that, the two instruments have the same risks. If you don’t like the bond, then you won’t like the dollar either. The day will come when en masse, the market decides it doesn’t like both of them, and gold will be the only acceptable money.

With due respect to our old friend Aragorn, today is not that day!

We believe interest rates are headed lower, not higher. But that said, we do not see any particular causal relationship between the interest rate and the price of gold. The former is the spread between the Fed’s undefined asset and its undefined liability. It is unhinged and while it could shoot the moon from Truman through Carter, it’s sailing in the other direction now. Down to Hell.

The price of gold is the exchange rate between the Fed’s liability and metal. So long as people strive to get more dollars—most especially including those who bet on the price of gold, and those who write letters encouraging the bettors—there is no reason for this exchange rate to explode.

To again plagiarize the Ranger from the North, the day will come when gold goes into permanent backwardation. But today is not that day!

Today (Friday’s close), the price of gold is down seven Federal Reserve Notes from where it was a week ago.

So where to from here? Are those dratted fundamentals moving?

We will update those fundamentals below. But first, here’s the graph of the metals’ prices.

The 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 fell a bit more this week.

The 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

The price of gold fell (i.e. the price of the dollar rose, green line), and the basis (abundance) fell and cobasis (scarcity) rose just a bit.

Our calculated fundamental price of gold fell about ten bucks, now about $1,200 even.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price

In silver, we see a 14-cent rise in price but the cobasis is up.

The fundamentals got ever-so-slightly tighter. And our calculated fundamental price moved up to just under $15.

We note that speculators bid silver up this evening (Arizona time) in the wake of the Italian vote, some 30 cents to just under $17. But as of this publication, they couldn’t hold the line and the price fell back and is now a nickel below Friday’s close.