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

To: Zardoz who wrote (90220)	10/1/2002 5:05:29 PM
From: E. Charters	Read Replies (3) \| Respond to of 116762

Money is "price" - elastic with respect to supply. Money's price is of course its buying power. As the M1 increases money'sbuying power decreases and prices rise. The change in one with respect to the other is called elasticity between these two variables. Elasticity means the tendency for the thing under consideration to change one factor with respect to another factor's change. This is called elasticity but could just as well be called inelasticity. You could say change of price with demand or change in price with supply was a kind of rigid behaviour but in economics it is considered adaptive or changing behaviour. If a commodity will not change (decrease) price with respect to supply increase we say it is inelastic. It has no "give" so to speak. If hordes of gold is dumped on the market, and the price does not budge, as has been seen, then we say gold is price -inelastic with respect to supply. If hordes of people demand gold and the price does not change we say gold is price-inelastic with respect to demand. In fact this is the case. So why does gold change in price? Because money, is price elastic with respect to supply, and it is the pricer of gold. We could use rutabagas but most people tend to use US currency. As currency falls in buying power the gold price gets higher.So really we are seeing money elasticity, since its supply here is changing not gold's. So we could say gold is price elastic with respect to money's supply. Gold is also price(demand) elastic with respect to the Dow's trading level. This is because capital available to purchase gold, increases as the Dow decreases. This is in part supply-demand for gold. But again, it is demand side not supply side. Gold is still in this graph relatively supply-inelastic. This is really the invisible hand of the money supply moving a fixed slope, relatively inelastic (nearer horizontal) supply/price gold curve to the right, or in effect, up. Price is the vertical axis, ounces per year, the horizontal. The gold :curve, is a line descending from the left at some high price of gold, say $100,000 per ounce at zero ounces produced to zero dollars out at production supply of 50 million ounces per year. Totally unrealistic but it demonstrated the inelasticity of gold. Gold has to have a fairly shallow slope to the right and down. There is supply-demand but it kicks in under extreme conditions to zero-out production and price. This is not like cars, or sugar, or polyester suits at all. Of course there is a supply demand equation to every commodity. If it started raining gold, it may drop in price. Also steel umbrellas would rise in price. But to compare the price of gold, with respect to its supply with the humungously ballooning M1 and overheated Dow, is like ignoring the Mississipi overlfowing its banks to notice that pipe has hurst in the basement. It is the M1's invisible hand that pushes the relatively flat line of gold to the left or right. The people who cannot reconcile the long standing fixed ratio of silver to gold being broken in modern times are forgetting two very important factors. Silver has increased in usage as a commodity for photography, and decreased as commodity for money in England. It has fallen under commodity control by Kodak and photographic people, and has been replaced by gold as a monetary commodity and replaced by nickel and copper as a coinage commodity. When gold was released from fixed price, and standard of currencies, it became a secondary exchange medium, but silver was absent from the equation in trade terms. This may change as fashions change. Formulas of usage and substitution in the way in which they affect prices explain silver's different curves. In fact silver is in short geological supply for two primary reasons ofshortfall and if its demand returns as a coinage metal, and its fashion as a photgraphic material continues it could see sharp price rises. EC<:-}