Perhaps it may be lesser known than his other Laws, but Murphy wrote one for the basis analysis. It goes like this. If we observe that the fundamental price of a metal is far removed from the market price, the two won’t likely converge the next week. On the other hand, suppose we say this (as we did last week):
‘The Monetary Metals fundamental price is measuring just that, the fundamentals. As with stocks or any other asset, our centrally banked, government-distorted markets can experience price volatility and even prices that deviate from the fundamentals for a long period of time. Just because we have been calculating a fundamental price for gold that is well over a hundred bucks above the market price, does notmean that the market price has to spike up $100 tomorrow morning. It might – and we certainly would not short gold when the market is in such a state. But as the market has proven since August, it might remain depressed for quite a while.’
Then something is bound to happen the next week.
No, the price of gold did not shoot up to approach our published fundamental. The gold-silver ratio promptly moved up 2.3%. As readers will recall, we have been calling for a ratio value over 80 for a while.
This post was published at GoldSeek on Monday, 4 January 2016.
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