Nicholas Jones

Gold Demand Resurges

Response to some of the comments:

Cesato- The value of the U.S. dollar has driven gold and will continue to drive gold until the collapse of the treasury market results in the end of the dollar as the global reserve currency. I think what you probably meant to say is that the correlation between gold and the U.S. dollar's value relative to foreign currencies (USD Index). Foreign exchange rates have become a contest of the biggest losers as quantitative easing around the world has set in. I like to use growth in the adjusted monetary base (would use M3 if available) as a leading indicator to the value of a currency against tangible goods

Judejin- I agree with most of your commentary.

Gmiki- Be careful with silver, especially if you're thinking of using the gold/silver ratio (long silver short gold) as a trade. The ratio is obviously way off historical standards, but silver has significant more demand for industrial uses than gold; therefore silver demand is cyclical. Also, silver used in photography has fallen from 27% of total fabrication demand to 15% in the last 10 years. In that same period, silver demand for fabrication used in photography has decreased by 97.1 million ounces (43%) because of the introduction of digital photography. I will be putting out an article about the gold/silver ratio soon.

All that said, I'm still a silver bull, I just don't think it will out perform gold until the very end blowout of the bull market. You have to be careful using historic price ratios in making investment decisions.

Thanks for reading and taking the time to comment.