October 08, 2009

Re: Gold Rushes and Shortages

Matthew, the answer to your question, “Will we see another such surge in mining to accommodate the growing demand for gold?” is obviously YES. Think about it: Gold mining companies are paying their employees in a currency that’s depreciating and taking in revenue in one (gold) that’s appreciating. What could be better? Also, with regard to supply and demand, keep in mind that the price you pay at your local shop for a one-ounce Krugerrand is derived from the traded “paper” price on the Comex. This past winter I visited a shop in Whitefish, MT, and the guy was completely out of one-ounce gold coins, and had been for months. And yet even with this massive shortage, he told me he’d still sell gold to me at the Comex price. This is clearly an unsustainable situation. I’ve heard a number of people, such as Max Keiser and Tim Butler, speculate that at some point their might be a widespread “demand for delivery,” which would actually break the Comex. This would be spectacular! Another thing that might happen is a “de-coupling” between the paper price and that for specie.

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