Gold drifts marginally lower to start the week
How can gold be stuck in a range when physical demand is so strong?

(USAGOLD – 10/13/2021) – Gold drifted marginally lower to start the week despite global bond market weakness, oil pushing above the $85 per barrel mark, and inflation beginning to look more threatening than advertised. It is down $3.50 at $1765.50. Silver is down 5¢ at $23.34. Investors often ask how the price of gold can be stuck in a range when the demand for physical coins and bullion is so strong, as it has been over the past two years. We recently came across a succinct answer to that question from The Gold Observer’s Jan Nieuwenhuijs and thought it worth passing along.

“Demand for gold coins must be seen as a retail sentiment indicator,” he says. “In the gold space, it is often assumed that whenever demand for gold coins rises and the premiums these coins attract escalate, the price of gold should sky-rocket accordingly. This is a false assumption, because gold coin demand accounts for (far) less than 8% of total demand, and thus can’t possibly have a large impact on the gold price. At the heart of this misconception is a lack of knowledge between the gold retail and wholesale market. The price of gold is predominantly set in the wholesale market by institutional supply and demand. The same misconception applies to silver coins…”

Chart of the Day

overlay line chart showing gold and world money supply 2000 to present
Chart courtesy of Merk Investments • • • Click to enlarge

Chart note: Though gold does not necessarily rise with price inflation, it is heavily influenced by growth in the money supply no matter where that stimulus ends up. Charts showing growth of the U.S. money supply and gold are fairly common. This chart is the first we have seen combining the price of gold with growth in the global money supply.

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