Why can’t gold rally despite all of its fans? Maybe it’s the fear of deflation that casts doubt on the metal’s role as a protective hedge. Or maybe it’s just that for all the gold bugs out there, there are as many jewelry owners who can’t resists selling at prices above $900/Oz. That seems to be what’s happening:
Telegraph: Jewellery buyers, who are the main drivers of the gold price and make up more than 50pc of consumption, withdrew from the market with volumes down by 22pc in the last quarter.
Electronics producers, which need gold for components such as smart-cards, cars, medical implants and sensors, also appear to have been buying less of the precious metal as consumer confidence remains depressed.
Gold is a funny commodity. For one thing, it has this dual role as a store of money and as a usable commodity (for jewelry, etc.) Also the supply doesn’t change much. You don’t get this effect in oil, since we burn it and send fumes into the sky. When everyone wants to buy oil, there aren’t tons and tons of oil collectors who decide that they want to sell what they’ve been holding onto.
Anyway, the net effect for now is that gold is becoming more and more of a speculative, money substitute and less of a used commodity. If things don’t get ugly for the rest of us, they could get very ugly for gold fans.
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