F. A. Hayek: “The curious task of economics is to demonstrate to men how little they really know about they imagine they can design.”
As a preview to understand how the law of demand and supply works see Trading Places in the Pits Hint: Are there more buyers than sellers?
Thus you can explain the fallacy of Eric Sprott’s sentiment that demand is overwhelming supply:
We see almost 60 tons a week being delivered on the Shanghai Gold Exchange. Well, you start annualizing 60 tons a week you’re talking 3,000 tons a year now. We saw 94 tons of gold go into India in September. We saw the Russian Central Bank buy 37 tons of gold in September. I mean I could come up with numbers that might suggest that we’ve got 400 tons a week of demand. And we only got 230 tons a week of mine supply. And I’ve only gotten to three data points. I haven’t even gone to the rest of the world.
We’ve now created a situation unfortunately in the market where between high frequency trading and algorithms and interference by the planers they can make things happen that looks like everything is OK. And it’s the “OK” part where I think we can really relate to gold not being allowed to go up. Because that’s the canary in the coal mine. If gold was above $2,000 we’d all be wondering: What the hell is going on here? And so they haven’t allowed it to happen.
But by suppressing the price — and one of the great things about a price of $1,100/oz is that you can buy a lot of gold at $1,100 versus $1,900 — you can buy almost 50%-60% more gold than you could three years ago with the same amount of money. And you can buy 3x the silver. With the same amount of money!
http://www.peakprosperity.com/podcast/88731/eric-sprott-global-gold-demand-overwhelming-supply 35 minute podcast.
Of course, demand must equal supply or supply equal demand at a CLEARING PRICE. Go to pages 137 to 138 to understand Reservation Demand (critical in understanding a high stock to flow good like gold) Man Economy and State by Rothbard
If you don’t understand price moves against you, then scream manipulation on price declines. But where was the “manipulation” from 2000 to 2011 while gold rose in price vs. the U.S. Dollar by 1,600 dollars! You are a fool either way. You trade in a rigged market or you complain that you are buying a good that is artificially depressed. You are subsidized to buy gold at “below” market (read manipulated) prices yet you complain.
The amount that a seller will withhold on the market is termed their reservation demand. This is not, like the demand for a a good in exchange, this is a demand to hold stock. Thus, the concept of a “demand to hold a stock of goods” will always include both demand factors, it will include the demand for the good in exchange by nonpossessors, plus the demand to hold the stock by the possessors.
I strongly suggest that if you wish to improve as an investor that you read Rothbard’s book along with the free study guide. The implication that demand is overwhelming supply with a falling price is absurd! Yet, Goldbugs howl incessantly that the price is being suppressed since demand is “overwhelming supply.” Nonsense, everything equals AT A PRICE.
Did you view the video of trading places above? Where was Louis’ Reservation Demand? SELL 200 APRIL ORANGE JUICE AT 142!
Most analysts do not understand the law of supply and demand
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Gold wasn’t always in the dumps. It rose right along with equities, indeed outperformed equities, from the 2009 Great Recession bottom – when central banks the world over first began implementing their unconventional monetary policies – straight through to its September 2011 top. The reason we think it did is quite simple. Coming out of the Great Recession, central bank credibility – their ability to “pull us out” of the Recession – was being severely questioned by investors. Thus, a good portion of investor money found its way into gold. That changed in 2011. Underwritten by these same central bank easy money policies, the as yet unresolved malinvestments of the Housing Bubble turn Credit Bust turn Great Recession, which were in the process of a healthy liquidation, were short circuited, while new, yet to be revealed malinvestments (we think the largest being anything in and around financial engineering) were starting to bear fruit. The belief took hold that the heroic policies of these central banks were finally working, finally restoring long term vitality to the economy. Gold then sunk while equities marched ever higher. So here we are…