Dan Caldwell

Interest Rates and the Mineral Bubble: The Hidden Parameter

Culturally, gold is an inflation hedge utilized by peoples in developing countries. As more and more people OUTSIDE of the US upgrade their lifestyles and move up into the lower middle class it is not uncommon for them to keep 10% of their wealth in physical gold. Worldwide demand is rising incrementally even as mining production slows. Also, one oz. of gold has historically been worth 15 bbls. of oil, which would place the equilibrium price of gold at $1,650/oz.

Silver is an industrial metal more than a precious metal, and from the silver industry's own annual report silver short interest is net short more than a whole year of production. Almost every oz. of silver that has ever been mined has been used, not hoarded, and mining production is dropping even as industrial demand applications are rising. IMO silver will be the next commodity to face a parabolic run when people short the market suddenly being asked to deliver on their contracts and they can't find physical supply.