Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: TobagoJack who wrote (27157)	1/8/2003 6:59:29 PM
From: Moominoid	Read Replies (1) of 74559

It's kind of similar to the cost of housing. In both cases there is an existing stock, demand, and the marginal cost of producing additional units which will rise if (demand-existing stock offered) rises. If you can model those three things then you can model the price of gold quite rationally. The only problem is that investment demand for gold is for an asset with no income which using a cash-flow type analysis means that it shouldn't be worth anything as a capital good. The only reason to hold it is as a store of wealth. The only reason it is worth anything is its cost of production. In these cases the price of a good becomes indeterminate.... In the housing case, housing services have a real value. The difference between that value and the cost of producing a house is the land value. So maybe the price of gold is irrational? It is similar to luxury goods that people want because they are expensive (positional goods). That's a first shot at the issue. I'm sure someone out there has done some proper research on it. David

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