Geez, now we've got Stevie Wonder describing a Jackson Pollock painting to Ray Charles! <g> Isn't there anyone on this thread with a degree or background in economics that can help with this discussion? I'm doing the best I can with limited background...
Now not to be bashing, but, IMHO one needs to rework the analogy one is using as it appears as though, either there is circular logic or the point one is trying to illustrate isn't getting made.
But perhaps we should approach it from this direction: How is the price of gold "set?" What makes the price go up and down?
Then there is this....
Applying this logic to the gold market, it looks like there is no scarcity. (No surprise, considering gold is not really consumed, only hoarded or recycled.
Is that so? Hmmm, perhaps one should consult with an Electrical Engineer about the uses of gold in electronics, industrial applications and dentistry? The World Gold Council's figures suggest that about 11.5% of the end-use gold demand if from these uses. That was 429 tonnes in 2005! If memory serves gold is a wonderful conductor, which is used, in some electrical components. I suspect that this usage is in such small amounts relative to the bulk mass of the rest of the equipment that it is hardly ever recovered and thus gets "consumed."
Also, gold is used in dentistry. While I can see some people wishing to "recycle" gold fillings from cadavers, I suspect a fair amount ends up getting "planted." Therefore, some more gold is consumed by dentistry.
But that is only the first half...What makes something "scarce?"
I suspect there has to be some component of demand in the equation for what sets the price of gold, no? Look at the demand increases for gold jewellery over the last 5 years and tell me that has nothing to do with the increase in the POG during the same time period?
But remember, gold is not just a commodity, but money or a store of wealth as well.
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