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Gold's Biggest Drop in 30 Years Fails to Deter Advocates
The basic reason why is that none of the fundamentals driving this bull market in gold have changed. In addition, you have a very split market in pm's between the paper price and the street price. The paper price is driven by futures and ETFs and all sorts of securitized instruments. This market activity sets the spot paper price of gold. The street price is what is being charged someone that wants to take possession of the physical metal.
Most often these prices run in tandem but at times they diverge. When they do diverge, you see one of two signs - supplies of physical bullion start drying up and/or premiums increase.
Er, this is Econ 101 for supply/demand curves in a market with either price controls or artificial pricing. This is the same thing that happened under Nixon with gas price controls - supply disappeared. Or over the past several years with credit and the liquidity trap that we've been in. The interest rates (price of money) are being kept artificially low by the Fed - below the 'street price'. Try to find a banker that has money to loan for a 30 year fixed mortgage at 3.5%. Now if you're willing to pay 5% . . . well, maybe they can find some cash.
And Re: banks - Right on. If you have a sterling credit rating (translated: don't need the $$:-) you might obtain a 2 or 3% loan. The rest "go a sorrowing" per BF. And, yes - it's all tied to the "accommodative" monetary policies world-wide. Not knocking the policies - just saying how it is.
Comments
The basic reason why is that none of the fundamentals driving this bull market in gold have changed. In addition, you have a very split market in pm's between the paper price and the street price. The paper price is driven by futures and ETFs and all sorts of securitized instruments. This market activity sets the spot paper price of gold. The street price is what is being charged someone that wants to take possession of the physical metal.
Most often these prices run in tandem but at times they diverge. When they do diverge, you see one of two signs - supplies of physical bullion start drying up and/or premiums increase.
Er, this is Econ 101 for supply/demand curves in a market with either price controls or artificial pricing. This is the same thing that happened under Nixon with gas price controls - supply disappeared. Or over the past several years with credit and the liquidity trap that we've been in. The interest rates (price of money) are being kept artificially low by the Fed - below the 'street price'. Try to find a banker that has money to loan for a 30 year fixed mortgage at 3.5%. Now if you're willing to pay 5% . . . well, maybe they can find some cash.
feh,
peace,
rono