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Politics : Welcome to Slider's Dugout -- Ignore unavailable to you. Want to Upgrade?

To: Fun-da-Mental#1 who wrote (4096)	12/11/2006 9:29:24 AM
From: hubris33	Read Replies (1) \| Respond to of 50716

Oops, it does look like ETF was double counted. Good catch, my bad. Looks like I'm human after all. That said, there are a few key points about the post we should discuss: the purpose and then the statement about demand having to equal supply. I think that the point is that there was a post here that stated that there were huge drops in various aspects of the demand side of the equation and used that as support of a theory that gold prices had to crater as a result. Examination of the facts from the same site used to supply the demand data shows that, [using WGC data] demand and supply are nearly balanced. But also, as discussed in my replies, supply is not in a growth mode. This is key; should one look at just one side of supply - demand relationship, but rather both sides? So demand and supply are basically equal, which they have to be, as long as the market is liquid. For every buyer, there is a seller. If demand actually exceeded supply, there would be a waiting list to buy gold [Ah gee, can someone help me out with this? I'll take a stab, but my economics isn't what is could be.....] The premise that demand has to equal supply makes no sense to me. Certainly instantaneously one cannot sell more than is produced, but demand is a function of wants by the market place. It is the changes in demand that drive prices either up or down, no? If the demand exceeds supply there isn't a "waiting list" to buy gold, rather the price of gold goes up. The POG keeps going up until the buyers have less desire for gold at higher and higher prices. Conversely if demand is low then prices can drop. If one reads the WGC text it is clear that these forces are currently in action. When the POG shot up to the 700+ level in the Second Quarter 2006 demand fell off. However, when the POG fell to the 570 to 600-range demand was rejuvenated and buying came back into the market. IMHO a key point of the articles is that the buyers now see the 570 to 600 range was a good bargain and a point at which one should buy gold. Apparently in early 2005 the level that was perceived as a good bargain was the 420 to 440 range. Nonetheless, high volatility took its toll on the jewellery market. It was only as the quarter drew to a close that demand from this sector began to re-emerge, thereby redefining a new price floor. But another key part of the story is a look at the supply side. Let's look at the summary from the "Gold Demand Trends" publication that I cited. Gold supply was 12% below year-earlier levels with all components contributing to the fall. I think that the key point here is that mines, which supply 62% of the gold, are in a period where production is expected to remain relatively flat for the next couple of years. So part of the story is how is the rest of the demand is met. Either additional supply comes on the market or prices rise, no? So the demand, not supplied by increasing production from mines, has to come from either official sales or recycled gold. But wait, the official sales are capped on an annual basis and thus if there are more buyers out there wanting more and more gold and the demand can not be met by sales from Central Banks it has to come from elsewhere or an increase in prices, no?. But if demand goes up perhaps there will be a big increase in recycled gold as people rush to melt down those numismatic coins, their dental fillings or other things. But the only thing that should spur an increase in recycled gold would be higher prices, no? It looks like on a rudimentary level (as best I can tell, perhaps someone can add additional info?) that for prices to keep increasing there needs to be an increase in demand. I think the theory that most Gold Bugs buy into as support for higher demand is the fact that two cultures where gold is important, namely China and India are have a surge in their middle class and thus an increase in disposable income which is expected to lead to an increase in the demand equation going forward. Apparently the market works, as demand did not stay strong when the POG went over 700, however, demand did rejuvenate at the 570 to 600 level, establishing a new floor, which is a nice increase from the 420 to 440 floor from 2005. So how long does it take for consumers to get use to the 570 to 600 level as the floor and build a willingness to bid he price higher? Finally, the figures stated to support the 'anti-Gold Bug' argument were quarter-to-quarter comparisons. Perhaps a look at a longer-term chart is in order? Here is a year-to-year chart of jewellery demand. It looks like from this chart that demand is on an up trend YOY, no? Now I suspect that because Gold is more than just a commodity used to produce things that there are other forces in play as well. Also, as stated my econ understanding is basic at best so perhaps there are other factors to be considered? Perhaps we can discuss those issues? H3