By: Mike Hammer
Everyone wants to predict the price of gold in the future. After all, if you knew what gold prices were going to be in a week, it would be MUCH easier to profit from them. That’s what the options and futures markets are all about.
The two traditional ways to approach pricing are from the demand side, and from the supply side. Most gold analysts seem to concentrate on the demand side. They look at factors that motivate buyers, such as the movement of interest rates, currency prices or some measure of fear. This works up to a point; one of the more frustrating things for new gold traders is hearing “this factor predicts 25% of the change in gold pricing.”
What the heck does THAT mean? Is there someone somewhere in charge of setting these things? And if so, can I get her phone number? What it means is that using statistical analysis, one can show that certain things move in concert with the price of gold to a greater or lesser degree. It doesn’t mean it works all the time; anyone who took Stats in college knows there are a myriad of variables which describe the devious and sundry ways things DON’T always correspond.
But back to our discussion: One of the basics of economics is that prices are determined where the buyer and seller meet. Or, where supply and demand meet. So you can look at prices from either side and eventually you’ll be right. Energy costs are a huge part of the cost of producing gold, so could it be that energy prices are a decent predictor of gold prices?
In today’s featured article let’s take a trip to the demand side, where some analysts believe an easier way to look at gold prices might be from the production (supply) side.