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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: IngotWeTrust who wrote (90216)	10/1/2002 1:58:34 PM
From: E. Charters	Read Replies (2) \| Respond to of 116762

I may not have woolly's beefs with you, (lord knows where they come from) but I do defend my take on whether or not gold is inelastic or elastic, and whether or not the gold scrap business is everyman's or anyman's business. (not). The statement made by Veneroso is a generality and applies to the degree of elasticity of the metal. It is not an absolute, for instance, as in "gold is elastic". Nor do I say gold is totally inelastic (an impossible or price/supply ambiguous condition.) on the other side. But it is not a standard commodity. It has very long term, well known, supply, and stable demand. But it has been found that dumping large quantities does not significantly affect the price. (IMF auctions of the 1970's). The price swings of gold are due to the elasticity of the money supply, which we know is demand and price elastic fairly nicely with one major exception. That exception is during a period of non-inflationary growth. This is because the normal indicators of inflation do not register rises in prices, because the money flow is not into these goods, but into capital spending or investment instruments. Thus the inflation is all in the market. Hence Greenspan's attempts to curb investment excesses by adjusting interest rates. Gold is relatively inelastic because it is a commodity that only reflects the amount and stability of currency. In and of itself, Gold's total amount in the market is almost immaterial. There is a supply and demand component, but this component is dwarfed by the overwhelming influence of the amount of money available and the reflection of the flight of that capital, towards either market support, or into safe havens such as gold. The swing into gold presages the depression of the dollar's worth as the market declines. In that gold is swinging now opposite the market, unlike the 1990's where it was holding on due to massive flight of capital into the market, it demonstrates that is once again has taken on the role of a quick alternative to the market as a money sink. During the 1990's gold moved with the market weakly. It fell broadly with the general trend of the market upwards, but in short term swings, it moved with the market. It had been tied to derivatives so closely that, in effect, its short term price was a market item. Now hedge books are being unwound and gold is more separate from the paper flurry. It moves short term against the market and classically long term against it as well. This means that there is much long term pressure on gold, and we see this as the support levels are moving steadily upwards, and psychological support is much stronger against long term slides. The precise reverse is true of the market. Effectively we have entered a no brainer, classical gold and oil market. Upward vector. Classically, also the market is weak in every point. there is no long term good news. Only hollow sounding cheering about how bad it has not got yet. Gold's seeming elasticity is only related to the elasticiy of its reflector, money. A curious thing happens when the money supply shrinks and prices fall. Gold rises. Why? Why does it rise during inflation, and also during deflation? This is the conundrum of conundrums. Well, it is an observed phenomenon, so don't go denying it or rewriting history. Many people are confused by Bretton Woods and think that Roosevelt by a stroke of a pen made gold 35.00 from 20.67. This is totally untrue, an until this point is understood, the whole understanding of what gold is in the world of money will be missed. Gold rose quite nicely on its own until 1934. To think that Roosevelt would or could fix its price upwards is perhaps giving him way too much credit and way too little at the same time. He would not have wanted a higher price, if he could have avoided it. As well he could not have engineered it easily. In fact gold buys dollars or debt. Dollars do not buy gold. In effect if you banish supply variations from a commodity that is exactly what happens when you make a transaction. You are exchanging the good of constant value for a debt from the US government that is variable in value. (It is chiefly variable because of its increasing undisciplined supply.) In effect you are buying a debt with a good. If you change it around and take out the dollar and substitute another good it is easy to see that no one good is the buyer except the "commanding" (in demand) thing. This is generally the good. (If you have rutabagas and everybody wants them, you can buy up all the dollars with your rutabagas) They buy each other really. Selling or buying is purely psychological in terms of need. Neither is predominant until the cash is slapped down. That is wny the Eastern way of haggling over prices is fundamentally more honest. The idea of one fixed price for all things is saying that the merchant is always the buyer, not the customer, or that markets are infinite. So in the case of gold-dollar debt why does gold command dollars if debt or dollars are scarce? Well, folks are short money. But they can mine gold. So the gold looks like money. It looks that way because it traditionally is a medium of exchange and it becomes in demand as it can be used where the other money i.e. gov't debt, is being squeezed by the banks. So it is recursive or circular in its function. In essence because it can be used as scarce money and acquired by mining, it becomes in demand. In demand it commands dollars, and the price goes up. The mineability of gold makes it like cheating. It is no different in this than any other commodity though. Create the illusion that everyone needs a computer of they will be left behind in the information age, and you can print dollars too. EC<:-}