Gold is not just a commodity

June 30th (Richard Russell) Some gold analysts are saying that gold is headed lower because the current "high price" of gold is curtailing demand for gold jewelry. For instance, it is said that India, the world's biggest buyer of gold for jewelry, has cut back 50% on its gold purchases because of "gold's high price."

But gold is not subject solely to supply-demand the way say steel or lead is. Gold also possesses enormous monetary and wealth implications. Forgetting supply and demand for jewelry, gold can rise because investors want to own gold as a store of wealth. Nobody buys steel or wheat or cotton as a store of wealth. That's what separates gold from every other commodity. Gold is not just a commodity, gold IS wealth. Most commodity analysts fail to understand this.

My comment: In a previous post, I reported that recent collapse of the Vietnam equity and property markets, accelerating inflation, and concern about the weakness of both the US dollar and the dong have spurred a significant increase in local demand for gold this year. Vietnamese are doing exactly what Russell said, they want to own gold as a store of wealth. Record imports of gold bars have made Vietnam the world's largest market for gold bullion, surpassing India and China and helping to deepen Vietnam's trade deficit. IF China/India equity and property markets drop further, and IF Chinese/Indian turn to gold as a store of wealth, what will happen to gold price?

at 7/01/2008 Labels: ,

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