Gold – An Overview of Macroeconomic Price Drivers

acting-man.com / Pater Tenebrarum / April 11, 2017

Fundamental Analysis of Gold

As we often point out in these pages, even though gold is currently not the generally used medium of exchange, its monetary characteristics continue to be the main basis for its valuation. Thus, analysis of the gold market requires a different approach from that employed in the analysis of industrial commodities (or more generally, goods that are primarily bought and sold for their use value). Gold’s extremely high stock-to-flow ratio and the main source of gold demand  – which is monetary, or investment demand – suggest that gold has to be analyzed as though it were a currency rather than a commodity.

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One implication of this is that reservation demand is an extremely important factor in determining the gold price (for details on this topic see Robert Blumen’s essay “What Determines the Price of Gold”). Data on the annual flow of gold in terms of mining supply, jewelry demand, retail buying of gold eagles or net demand from central banks are insignificant by comparison.

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