Gold Reminder from Saville

By Chip Hanlon | November 13, 2008 | 2:20 PM | 2 Comments

Steve Saville penned another interesting piece for subscribers yesterday, and in it he made a point with which I agree:

Anyone who thinks that changes in the fabrication-related (jewellery, etc.) demand for gold are important determinants of the gold price is looking at the gold market as if total supply were roughly the same as annual mine supply (annual fabrication demand is equivalent to a large percentage of annual mine supply). However, the supply coming from mines adds less than 2% per year to the total aboveground gold supply. In other words, those who focus on fabrication demand and mine supply are, in effect, basing their analyses on less than 2% of the gold market. The other 98% of the market is clearly where the focus should be, and that 98% is governed by changes in investment demand.

In other words: gold is a monetary metal, as investment demand is based on the market's outlook regarding inflation. Forget about its industrial applications or jewelry demand, which do little to impact gold's direction.

With that in mind, I actually think gold has acted pretty well in the face of substantial U.S. dollar strength. In the short-term, I still suspect it will first head a bit lower from here as the world continues to deleverage, but it's easy to conclude the mustard seeds for another lasting gold bull move are currently being sowed.

Pardon, but it might be a quiet posting day for me as I battle a badly thrown-out back, which is unusual for me (I have the strength of 10 men). Same deal on why no podcast this week. Thanks for the patience...

Substantial dollar strength Substantial dollar strength is due to government doing all they can to avoid dollar devaluation. Sooner or later, they will have to raise interest rates or print more money to aid in the country's economic bailout. Gold's true value will eventually come out and those who've invested wisely will reap the dividends rightfully is theirs to begin with. Submitted by gold today (not verified) on Thu, 2008/11/27 - 1:47pm » reply |

I hope you are right. Much I hope you are right. Much pain lately. Submitted by jsjgold on Thu, 2008/11/13 - 3:23pm » reply |