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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers
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To: John McCarthy who wrote (21234)9/17/2006 12:03:46 PM
From: The Vet  Read Replies (2) of 78417
 
John, I will comment on one point, that of jewelry demand.

I don't believe that the trinket market is anywhere near as elastic or price sensitive in the longer term as is commonly believed.

However it is "lumpy", which makes it very price sensitive in the short term. Manufacturers of trinkets need a constant supply which generally is increasing at a fairly steady rate. They can do far better by buying more than their immediate needs when the price is low and refraining from purchases when prices are high. Gold in their vaults is better than money in the bank especially if it was bought at lower than average prices. Their actual use doesn't change much; when prices are high they use metal from inventory bought at earlier lower prices.

When prices drop they replenish that stock. However their inventory of raw metal is not unlimited and when it is exhausted they are then forced to buy even at higher prices. As a result, we see resistance to physical buying by manufacturers at high prices but that is quickly compensated by increased buying when the price drops.

This effect is much greater with PMs than it is with most other commodities, simply because gold is both money and a raw material for jewelery manufacturers. It's also easy, not bulky and cheap to store especially for manufacturers who already have secure storage in place for their materials and products.
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