Can someone please explain to me why there is such significant movements - what is affecting these swings?
Okay, this is about the ninth thread in this vein now. Those with a musical ear know a ninth creates dissonance.
Those with gold wanting silver are in box seat! Too bad no gold in my portfolio at present. I'm waiting for Ag over $50 for my move to gold, then il be back to silver with the next slip. Buy your Ag while you have the chance now you gold holders!
I haven't read the other 8 threads, so I'll give it a shot . 1 - You need to remember a couple basic facts from economics. There is no such thing as a "true" value. Value is subjective and is determined by sellers (supply) and buyers (demand). Where the highest demand meets the lowest supply is the price at which market transactions occur. This price is only good for one particular instant in time and space. 2 - Now gold and silver in particular are precious metals that have long histories as monetary intermediaries. Over the past few years, that use has been and continues to be rediscovered. 3 - Also remember that gold and silver are *very* small markets in financial terms compared to all the fiat money out there. A small flow of money in or out of these markets in absolute terms has an enormous impact on the market prices. Fact #2 is used by precious metals bulls. Fact #3 comes into play with events like massive naked shorting from financial institutions and exchange margin hikes. The interplay of those two facts with fact #1 creates huge volatility in the precious metals markets.
That's only one theory of value. There is also the labour theory of value. That is, something is worth the amount of socially necessary labour time required for its production. This is something that great thinkers like John Locke, Adam Smith, David Ricardo and (gasp) Karl Marx adhered to. It was only later in the 1870s that this marginal theory of value started to be articulated from the earlier classical theories.
Yes, but the labor theory of value is nonsense. Just because Smith promoted it doesn't make it true. I personally don't care that it took some Iranian guy 4328 hours to make a hand-stitched rug when a machine produced version that looks and feels the same costs 1/100th as much. Of course, others might disagree and say that the rugs aren't *really* the same and that the custom rug has a subtler weft makes it more valuable. The fact that there could even be such a disagreement shows that value, very much like beauty, is in the eye of the beholder. And yes, the subjective theory really took off in the 1870s along with the so-called marginal revolution but there were similar insights throughout history. Most especially among the Spanish Scholastics and the Irish-Frenchman Cantillon.
Strong words. When Sony released its first plasma TVs, the prices were high due to the fact production costs were high. Demand was small yet Sony does not reduce the market price to find the demand-side equilibrium. Instead, Sony cheapens the production process and cheapens the price in this way. Demand increases. But the law of supply and demand tells us that as demand increases, the price should go up. This is especially true of luxury products with a high elasticity. However, the price of the TVs instead goes down as more people buy. Sony is not after profit maximisation, but volume sales and market share. Clearly, the classic law of supply and demand is outdated for our modern industrial economy. It may have been somewhat relevant in the past where we had plenty of small participants that were price-takers, but that was over 100 years ago.
This assumes that the supply curve is a straight line. When the demand is higher Sony can create bulk TVs at a lower cost due to streamlining their production process. Whereas when it is still a niche or is new, the production cost is high as there is R&D and low production which means the fixed cost portion of the total cost is high. Hated economic theory at uni, load of fail imo ^ agreed
Then there are diamonds which don't adhere to any other known model of value. Yes there is a high demand, but it doesn't come close to the supply of diamonds. Supply, demand, production costs? Mean nothing with regards to diamonds. The value of diamonds are assigned by the companies that mine them, mainly DeBeers
OK, I'll bite. In addition to what fishball said... I won't get into a whole digression about how equilibrium is really a faulty model that has very little to do with reality. I'll also ignore that labor value is not the same as manufacturing costs. So you're basically saying that if they were operating under the classic supply and demand paradigm, they would have sold their first plasma TVs at a loss in order to find a higher level of demand. If any TVs sold, then clearly there was some demand at that price level. Not really. Increases in demand only cause an increase in price if supply is fixed (like with numismatic silver Chinese coins for example). In the vast majority of cases supply and demand are interrelated market phenomena. You can't affect one without affecting the other since market participants are dynamic actors that respond to new conditions. Assuming your assumption about Sony's leadership's motivations is correct, if they were really about volume sales wouldn't they have sold the first plasma TVs at a lower price in order to gain volume and market share? But you just said they didn't so... So in summary, initially the price was high for this particular good because the lowest seller was still fairly high. Some transactions occurred, which led to more production, lower prices, higher demand, and more total transactions. That sounds suspiciously like the classic law of supply and demand. And just to be clear, the fact that value is subjective does not mean that a seller is willing to take a loss. In the vast majority of cases, a seller will only sell if he can make a profit. The fact that value is subjective will effect whether a transaction takes place at all at any given price. The seller must value the money more than the good that he currently possesses. Similarly the buyer must value the good more than the money he currently possesses. If the supply and demand were such that the seller could not provide the supply at a profit to the buyer at some price, there would be economic losses and the seller would sooner or later stop selling. The fact that any plasma TVs sold all throughout the various price levels demonstrates that different people valued the plasma TVs differently. A few valued the TVs at a very high price. A few more valued the TVs at a slightly lower price. Still more valued the TVs at an even lower price, and so on. Each group of buyers enabled the seller to produce more and more plasma TVs in a profitable way. The net result is more TVs at lower prices with ever-increasing quality. Again, that sounds suspiciously like the classic law of supply and demand.
The initial theory was put forth in a simpler time. http://en.wikipedia.org/wiki/Cost-of-production_theory_of_value
Economics can't explain share market bubbles and crashes - why would you think it could explain movements in the silver market ?
