Supply and Demand Effect on Gold Market

May 13, 2008 | By | 1 Reply More

As far as gold is concerned I am of the opinion that supply and demand has more of a psychological than a practical effect on market moves.

Virtually all the gold that has ever been produced is still present or recoverable in pure form, unlike any other precious metal. It is this unique property that has accounted for its historical appreciation as the ultimate store of value.

Until or unless an alternative arrives I believe we have no alternative but to continue our belief in gold.

However at the present time investors in gold are taking into account the South African downturn in production and that is hitting world supply as well as oil booming and the dollar on its knees.

This coupled with the fact that gold exploration was very limited for twenty years when the price was in the doldrums at the time the world still had faith in the paper backed dollar has also had its effect.

Now we have a situation where the price, and the anticipated future price, has encouraged many new mining ventures into the market.

As it takes 4-5 years or even longer for a new mine to get into production it is likely that demand will continue to grow if the present climate of financial uncertainty and increasing inflation undermining western currencies continues.

I trust that you will not take offence if I point out that the global influence of the US economy and particularly the US$ is declining alarmingly.

No doubt that when the Fed stops lowering interest rates and the dollar retains its value against the other weak western currencies, namely sterling and the Euro, gold will have a (temporary) pause in its run upwards, we may even see it drop back to circa $750 ´ish although I think that was more likely last week.

I cannot see any reasonable expectation of any determination by the Fed to raise rates by the very considerable amount needed and to take any other necessary steps to reverse the weakening of the dollar against global currencies or to contain domestic inflation and the massive outflow of military expenditure this side of the presidential election.

Reading the reports of the utterances of the prospective presidential candidates does not fill me with any confidence that they have the will or strength of character to face up to and takes steps to resolve the problems besetting the economy and putting the US back on track to continue to be the nation that the western world can rely upon to keep our freedoms and way of life safe.

Gold in European morning trading (0600 hrs EST) is trading around US$877.00 an ounce down overnight from $887.00 an ounce.

It has remained within the $850-890 range for some two weeks despite many technical indicators pointing to either circa $750, $800 or $825 being next support levels. This is why our faith in technical readings is on a par with reading tea leaves to tell the future.

Sometimes they get it right and sometimes they don´t! It seems that buyers are still interested in the present range and could be expecting that another surge to break back into $900 territory is on the cards.

It is also possible that the IMFs sale of 400 tonnes is dampening the market somewhat, when this is completed it is probable that the price will resume its upward trend.

If our posts seem a little late or brief please bear with us. The team are working on a service that will advise our readers when turns can be expected in the gold market. Initially this will be free for the trial period and when (or if!) our percentage accuracy can be reasonably determined we hope to give you some “golden” profit opportunities. 


Precious Metal 


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