as good as it gets for gold *****, page-6

the relationship of gold with jewellry is an interesting one. it is against the interests of jewellers and the end purchaser for gold to be at a high price. for a jeweller the price of gold is a cost of goods produced, the higher it is the more it squeezes the margins because the retail purchasers have restrictive price points. i have seen stats that suggest the offtake of gold for jewellry is inversely proportional to its price.

the interesting economic question is that, without the benefit of gold being a standard for currency, what long term economic demand driver will keep the price up? perhaps reserve banks increasing reserves eg russia; however that is not a return to a gold standard, it is merely a store for cash - and not interest producing at that. reserve banks buying gold will sell it again as soon as it stops growing because they lose money storing it if it is not growing in price. why buy gold at no interest if you could buy say US treasury bonds or the like paying some albeit low interest?

the prime use of jewellry would seek to drive price down. i suspect that, as the article pointed out, the supply side will also do the same as more production becomes economically viable. this brake will slow it and eventually turn it until supply is too high.

i like gold. my personal expectation is that, in the absence of any significant demand side use other than jewellry, it will settle into a super cycle of rise and fall.