Gold – Explosive Price Gains Possibe
crystalline gold nugget
In an environment of currency instability, the gold price and gold mining equities tend to preserve wealth. Larry Summers, former Secretary of the Treasury and current Chief Economic Advisor to President Obama, and Robert Barsky wrote an academic paper in 1998 titled Gibson’s Paradox and the Gold Standard. Their research led them to conclude that price action in the gold price is driven by the reciprocal of the real rate of return from the global capital markets. Demand for gold and, accordingly, the gold price are dependent on what alternative rate of return is available in other asset classes. A low-return environment in traditional asset classes such as equities and bonds will create increased demand for gold. The relatively small size of the gold bullion market and the gold equity market, combined with the magnitude of potential demand, creates a situation wherein explosive price gains are a possibility.
There is no shortage of physical metal in the wholesale markets (ie 400oz gold bars and 1000oz silver bars), it is the conversion of that metal into retail coins and bars that is causing a shortage of retail product, pushing up their prices. In other words it is a production capacity shortage.
Crystalline gold nuggets