The Physical Market seems to be comfortable with the current
POG - in fact, the gold demand rose in 2003, after dipping
in 2002. The sagging gold demand is related to Indian
currency. If the dollar falls against it, support in the
physical market will come at a higher dollar price.
Also, the physical market showed that the selling from CB
intensified starting 1997 or so, to almost 1000 Tonnes per
year. Recently, I think, this number dropped a bit.
There are 3 cornerstone assumptions in derivative markets
1) Treasuries have zero risk
2) Gold has negative yield, equal to the price you pay
for storage, 0 convenience yield, and so does silver.
3) The market s efficient, so BS model works.
I think, all assumptions are wrong, and the writing of
derivatives will be tested at some point. I agree with
you that the derivative collapse, if it happens, will be
very deflationary. However, I fully expect USD to be
destroyed shortly with it, or shortly after it, as
the Fed banking insurance kicks in. It's hard to see now
how it will all happen. A combination of deflation in some
areas and hyperinflation in other areas is very likely. |
