gold supply and demand dynamics are unique

derryb

A major contributing factor to gold’s price is that the vast majority of the stock of physical gold is held in very strong hands.

"Gold is a unique asset in that it denominates, or values currencies. Dollars don’t bid for gold. Gold bids for dollars."

ricko

Very interesting. While the article makes very good sense, it did leave out the effects of politics on gold prices. Or it seems to.... unless the political impact is considered within the fiat currency consideration. Cheers, RickO

jmski52

So I will put another chip on the table for derryb - will silver go giffen?

derryb

<< <i>So I will put another chip on the table for derryb - will silver go giffen? >>


Not on its own, but it will benefit greatly with the eventual quick, large move in gold if and when fiat becomes fantasy. As gold becomes more out of reach for someone seeking safehaven, silver will step into the limelight even at $100. The most important points of the linked article are "dollars don’t bid for gold, gold bids for dollars" and that gold is in some very, very, very strong hands, many of which will never sell.

jmski52

It does seem to me that most precious metals holdings are undocumented, which includes silver as well as gold. If silver ever does go into permanent backwardation, we could all be surprised.

derryb

We don't even know the truth concerning documented central bank holdings. I'm convinced there are numerous "old money" families, particularly in Asia who have been holding "off the radar" gold in massive quantities for many decades and even centuries. I'm also convinced that the gold in strong hands gets held tighter as prices move up because what it can be traded for is getting equally weaker.

Yukoncornelius1

<< <i>

<< <i>So I will put another chip on the table for derryb - will silver go giffen? >>


Not on its own, but it will benefit greatly with the eventual quick, large move in gold if and when fiat becomes fantasy. As gold becomes more out of reach for someone seeking safehaven, silver will step into the limelight even at $100. The most important points of the linked article are "dollars don’t bid for gold, gold bids for dollars" and that gold is in some very, very, very strong hands, many of which will never sell. >>



While I do think that gold will have to make a large move to push silver above $100 I can also see a scenario where physical demand for silver eventually pushed the price over $100.

There are so many industrial uses for silver yet hardly any for gold and if gold ever does go "giffen" there will be many poor to middle class people that will need an easily divisible form of exchange. That is where 90% coins and small silver bars will come into play.

secondrepublic

I agree with most points in the article. however, they are misusing the concept of Giffen goods, which applies to a rare situation in which a cheap good is consumed in greater amounts even as its price rises. In a Giffen scenario, this happens because alternative goods are also becoming more expensive, and so the "Giffen good" is consumed more than before. an example is the price of bread rising along with (more expensive) meat; lower income people will buy more bread and stop buying meat altogether, and so in effect they are buying more bread even though its price has risen. (in classical economic theory, people generally substitute away from goods as the price rises -- Giffen is an exception to that). perhaps there's some way to analogize this to gold, but the article doesn't explain it.