Seriously, I have a newsletter to edit and two articles to write, I will do anything rather than do them, I think I will put the kettle now!
There's only shortage at the current spot price. Try offering $3k for an ounce and you'll get all the gold you want
This is actually an important discussion. I am not sure I can cover it all tonight and certainly not with references but I will give a short version. Where is the safest place to store wealth? Almost every place we can store wealth it will erode or otherwise become worth less over time. Most things decay, oxidise, break down, float away etc and fiat money deflates in value. One exception might be land but its not very trade-able. Another exception might be the resources from the land. The raw elements themselves. When we look at the periodic table of the elements, which elements are stable enough to be kept for a long time? Once you discount the gases, radioactives, poisons, chemically reactives, liquids and those which are abundant you get left with Gold, Platinum, Palladium and Silver. These therefore become a store of wealth. Silver does tarnish and Platinum and Palladium are all somewhat non-descript silvery coloured metals. These are mostly affected by industry and suffer the economy's booms and busts. Gold is golden, shiny, malleable, rare and almost completely un-reactive and not subject to industrial volatility. It is the last man standing. This makes it a great way to show off your wealth, store your wealth and add its unique beauty to your appearance. Gold's value is not what it can be used for to make other things, it is the finished product itself except for shaping it. (Admittedly people might alloy it to make it more hardy.) This non-volatile wealth store makes it money. Hence the saying Gold is money. (note: silvers investment is only 23% of demand, industry controls the price of silver) Gold's (almost) lack of use in industry is another thing that makes gold money. It is not a commodity like Silver, Platinum or Palladium. It is not a resource. Therefore it avoids the problems of boom/bust cycles except for maintaining its wealth/money value against other measures of wealth (like dollars). Gold now has additional factors acting on it. It is harder to get high yields from the ground, it is costing more to use energy, and the population of wealthy people looking for safe ways to store wealth is increasing. As you say as gold gets expensive people will turn away. This stops prices increasing very fast but once there is less demand and price drops then demand increases again. The US dollar has failed at being a safe store of wealth, that is why countries central banks are going to the only option left; gold. So will people.
Good post, thanks Sure, as a store of wealth gold has few rivals, but is this the same as an investment, one keeps its value, the other increases its value. Also paper or plastic fiat currency shares some of the properties of gold which make it money in as much as it isn't a commodity or a resource thus also avoiding the boom/bust cycles. Of course unlike fiat, gold can't easily be inflated, though it can be debased.
Historically gold was not really an investment. It was money or a store of wealth. Gold and dollars are similar. I think it is fair to think of gold as one of the currencies. The advantage of gold is that no one on Earth can print a bucket load by typing on a computer. If you want to "print" more gold it takes about 5-6 years of finding it and setting up the required systems and people to do it. Today the amount of gold being brought to market is not keeping up with the wealth of all the new people in China, India and other places. Therefore it is becoming an investment because there is more wealth that wants to be crammed into a little ounce of gold. The biggest advantage of gold is that it has no other party risk. If you have shares, a bank account, or even fiat money, you are hoping that the party making that possible continues to make that possible. With gold you have no other party risk except the laws of nature not changing.
Jewelry and industrial demand are very similar, they are both consumers. Is it possible people will start buying gold jewelry though not only for its looks but for its investment grade as well? i believe this is happening in India already.
Once gold is consumed in industry is it then recovered? I know there are people who can tell you the metal content of every computer component under the sun and collect skip loads of old computers for recycling but I am sure most of it ends up at the tip. If the price went to $5000 I am pretty sure you would be able to drop computers off at the Gold Buyers who seem to be in all the shopping centers. I doubt many would end up in landfill Jewelry on the other hand is bought but hangs around, one purchase can be regifted many times around or if they are too out of fashion they get melted down and enter the pool again Most of the family gold is in jewelry form and has been passed down. European families who have lived through the pointy end of the World Wars, i.e. have been occupied and have had hyperinflation tend to see gold in a different light to those of us who haven't experienced anything like that at first hand. They tend to hold gold for the next SHTF. If you were buying jewelry for its investment potential would 9 carat rings be considered like fractional precious metals or would people be wanting the purer stuff. A lot of the Indian gold and silver is very pure, I remember a friend with a really thick bangle that was very malleable. Jewelry is a traditional gift at Indian weddings, and not just a ring or set of earrings, the brides drip with gold on the wedding day, then the multiple sets are all gathered up and stuck in a safe as it isn't the sort of thing you can wear on a day-to-day basis. The only thing about jewelry is that it is personal taste, some like chunky some like elegant. Even with coins and bars you have some that are more appealing than others and can charge a higher premium. Plus the fabrication costs are going to be a lot higher than pouring a bar. However if the spot price rises that high the fabrication costs will seem smaller as a percentage.
I would say, unconsciously or not, people buy gold jewelry because it is both wealth storage (possibly investment) and fashion. It makes 2 reasons to be happy. In India it is both wealth storage and fashion, in China I assume it is mostly wealth storage (to avoid inflation).
My theory is that the "Gold Buyers" are all over the place for a reason...they know whats ahead.The purchase of a SHITLOAD of Gold by India and China a year or so ago.Texas University Endowment Buys $1 Billion in Gold....etc etc etc When it US economy goes belly up and the dollar dies...where will the safe haven be to preserve wealth? You know the answer.
