Supply and Demand

Supply and Demand

Supply and Demand

The amount of gold and silver in existence is finite. This is very important. The metals can be mined but never created. Mining increases the stocks above ground but diminishes the amount still in the ground.  

Some of the gold above ground is converted into jewelry and some of the silver is used in industrial processes. What is left is the supply of bullion. It takes work and capital to mine gold and silver. So supply increases very slowly.

Central banks have been buying massive quantities of bullion for over a decade. Before this,  they were sellers of gold.

Even large investors are starting to realize that gold is safer than holding cash. In a world of negative interest rates, it costs money to hold cash. In addition, cash deposits in banks are at risk. If the bank goes bankrupt the money will not be easy to withdraw. In some jurisdictions it may be used by the bank to pay debtors. 

Interest for holding bullion is increasing among individuals and small investors too. Not only as an investment but also as an insurance in case of hard times or depression.

Less than 0.5% of investors hold gold or silver in their portfolios. So the demand for bullion seems very low, but it is increasing. At the present moment, demand exceeds supply. Iit is almost impossible to purchase certain bullion coins and bars. The dealers have run out of supply.

What will happen if demand doubles ? 

A doubling of demand sounds like an impossibility -  but it would only mean an increase to 1% of investors! 

Supply is finite. If demand doubles then prices will increase. A lot.