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…..ain’t Gold

A friend posted on usenet group misc.invest.financial-plan;
DEMAND (for Gold)
71% 2950 Jewelry (mostly US, China, India)
7% 300 Central banks & industry
6% 250 Hoarding
7% 300 ETFs
3% 130 Coins
5% 200 Hedging reductions
4130 Total Demand
2500 Production
850 Scrap
500 Official sales
(-280) Surplus (deficit)

To which I added:
Two thoughts, perhaps obvious, but bear with me.
One poster mentioned the substitution effect. Yes gold is used in electronics, but the amount in any system is so small that gold can rise to $2000, and there would be little reason to seek an alternative. I can find gold leaf selling for a few cents per square inch. Likely the gold content of a $500 computer is measured in cents. So no issue there.

Second, as the price rises, two thing happen. People find old gold jewelry they are not so attached to, as well as coins whose gold content (value) now exceeds any numismatic value. So the supply rises that way. Also, mines tend to have supplies that vary with cost. Huh? Well, there’s a cost to mining that has two large factors, yield (oz AU/ton ore) and depth (cost to dig). So if I hit an area that yields 1 oz/ton, and it costs me $800 to process, that area is noted and left unmined. At $1000, it’s reopened. This is oversimplifying, but not by much, it goes back to supply/demand, explaining how supply literally increases when the price is higher.


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