Craig,
>>gold could easily hit 200. tell me why it can't.
I will.
Unlike other trading vehicles (currencies, tech stocks, junk bonds), Gold is mined in the real world, and its supply is limited. Pricing of this commodity is not very far from economics 101. While even commodities like Coffee and Sugar see many variables on the supply side (weather, politics and many more) and the theoretical supply on the long run is unlimited, Gold producing has a rigid cost structure in comparison and less variables on the supply side. Efficiency is growing on the long run but supply is not unlimited (until the nuclear way of creating Gold becomes cheap, or some astroids can be easily mined).
Although many efforts have been made by producers in recent years to lower their cost, many mines are activated at cash cost per ounce of over $200 (total cost $250-$260).
If spot Gold went to $200 lots of mines (my guess- one third to a half of the global production) would be closed, as they would have lost money on each ounce they would have produced.
To enable supply be halved, something has to happen that would halve the demand (the stocks are not that big to have liquidation even take us to $200- as proven by the heavy liquidations by CBs in the past three years- much less to hold it there).
Let's talk about demand-
There are three sources of demand for Gold
1. Industrial
2. Ornamental
3. Monetary
Although I don't have the numbers for each component, it's not very hard to show that industrial and ornamental demand will behave like regular demands and increase as price dropped.
Monetary demand could behave differently, and my guess is that it is responsible for both bull and bear markets in Gold. Remember the Hunt Bros.
IMO monetary demand for Gold has seen its worse already in '98-'00, and the '99 low is therefore firm IMO.
Anyway, $200/oz is a pipe dream IMHO, too.
ATG |
