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Gold/Mining/Energy : Bema(Bgo) and Arizona Star
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To: long-gone who wrote (10287)1/9/2002 7:01:14 PM
From: Elizabeth Andrews  Read Replies (2) of 10482
 
I'm not a believer that hedging is material to commodity prices. It is done in all commodity markets where supply and demand in the short term determine prices. The only difference is that the precious metal markets never get "cleared" because of the relatively large above ground supply. But there's an even bigger supply of paper.

And, you are looking at the price in US$ terms. Take a look at a chart of gold in Mexican Pesos over the last ten years. Gold will appreciate in US$ when more people feel it is better to convert to a different asset class, of which gold is only one, because holding US$ will purchase fewer goods and services in the future. This belief will lead people to exchange US$ for other assets that they believe will preserve purchasing power better than the dollar.

Then what? Well, that will lead to a greater supply of dollars and less of a demand and probably both. When this happens in any commodity market, prices fall and that is probably what's going on here. The dollar is subject to the same laws of supply and demand as every other commodity I think.

Japan has huge deflationary problems and may have to sell some US securities to bailout the banks. That will increase the supply of dollars as they convert back to the Yen. Where is the treasury going to place these dollars?
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