>> 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 <<
ok
>> 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). <<
still with you.
>> 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. <<
not necessarily. first of all gold would have to stay there for an extended period of time for mines to shut down. i never said gold would sit at $200 for an extended period of time. also, many gold companies are obligated to produce gold to cover their forward sales (at higher prices), so they would have no reason to halt production. sure they could go into the market and cover their hedges, but that might be considered a risky strategy and you can't count on gold companies to be market timers. furthermore, you seem to leave out the notion of currencies. if south africa, australia, india, china have serious currency weakness they will continue to sell gold into the market in an effort to raise dollars.
>> 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). <<
i'm not sure i would agree that production would drop to 50% for one thing, although it would drop. there is plenty of above ground gold to dump on the market pushing it to $200, some from foreign central bankers, some from other places.
>> 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. <<
if there is a worldwide depression people might be more concerned with making their house payment or putting food on the table rather than buying a gold coin or necklace. demand for gold in electronics will plummet. supply would be raised as people dump their gold onto the market in an effort to raise dollars.
>> IMO monetary demand for Gold has seen its worse already in '98-'00, and the '99 low is therefore firm IMO. <<
gold is in danger of breaking the '99 low before the end of trading today!
>> Anyway, $200/oz is a pipe dream IMHO, too. <<
well the more i hear it's a pipe dream the more confident i am it's likely to happen. |
