Very impressive and scholarly post! But it seems that the problem
is also one of supply and demand. The supply of recyclable metals(including gold) is always increasing. The fact that many base metals are not recycled is due to their low value relative to the costs of recycling and refining. Gold, however, is a very expensive metal that can be easily recycled, since its industrial usage is limited and most of the gold on earth is used for either jewelry and/or investment. Thus the supply of gold on earth is readily increasing(for it does not only come from mine production), while demand remains constant. Given the current strength of the dollar, that supply of private and publicly held gold is losing favor as an investment vehicle relative to the dollar, which has consequently rendered its price in dollars lower. Some may argue that since most of the world's mines are uneconomical at current prices, then suppply versus demand will simply dictate a higher future price. That is not completely true, given what I stated above. If half of the world's mines were to shut down, sales of existing bullion can easily satisfy jewelry and industrial demand for an extended period of time.
Most of the investment and jewelry demand for gold has come from Asia in recent years. With that continent's current economic picture, much of that demand has simply disappeared, and won't resurface until Asia resumes its growth, which is years down the road. Gold's monetary role is also disappearing, as central bank sales have not yet abated.
What gold needs is a crisis, either a disaster within the global financial system, or political crisis on a global scale. Such incidents will reduce the value and stability of monetary assets, which themselves rely on the strength of the economy and the weakness of inflation. Besides y2k, which seems to be a factor that no one is willing to fathom, there is also the threat of a political disintegration in Russia, one to which most Western Journalists have turned an essentially deaf ear. Russia's crisis is reach dangerously critical levels. One senior U.S. analyst who visited Moscow recently, stated that while most people feared Yeltsin might die physically before serving out his term, they now fear that he might die politically. Despite the IMF bailout, Russian finances are still in tatters, as the recent package only serves to help roll over existing debt and does not solve the non-payment crisis. The Duma has begun impeachment procedures, and widespread discontent is boiling to the surface.
And don't expect Zyuganov and the communist to lead Russia to the return of the good old days of the cold war. A new Russian government that might arise as a result will be a much more nationalistic one, similar to the one in Bielorussia right now. The scary part, however, is that such a fanatic government will have 20 000 nukes at its disposal. If the West does not take this seriously, then it will see Yeltsin swept from office and a resurgence of the cold war, with much more frightening consequences. Gorbatchev was neraly overthrown by an armed coup; Yeltsin could possibly share the same fate. But the possibility for such an event is still small, though it's growing at an alarming rate. |
