The fundamentals of the PM Market.

I remember a poster's comment on Seeking Alpha, re the fundamentals of the PM market: "what fundamentals?" he asked. Obviously, the Poster was influenced by other than facts, because the PM market does have fundamentals.

First, PMs have intrinsic value. They are rare, have uses and it costs to produce them. Thus, they represent a certain amount of value. Because of their physical and chemical properties, they have served as money throughout history. People liked PM money, because counterfeiting is easy to spot and governments could not cheapen the money without the people knowing about it. Modern day predatory governments like paper money, because they can counterfeit it (I.E. print it) and the counterfeit money is indistinguishable from the original.

Like everything else, PM prices in paper money reflect supply and demand as well as the accepted value of the paper currency: i.e. the degree to which paper currency is being expanded.

The top graph shows the annual production of gold. Gold production began to rise in 1980 and doubled. However, it has now leveled out. So, the supply of gold has become limited once again, so that changes in gold prices viz a particular currency reflects the change in the value of the currency. Another factor influencing gold price is the demand. The second graph down shows the buying by central banks.

We now come to an important distinction that Bernanke fuzzes out deliberately. First, the value of the US Dollar continues to go down, because more is being printed. You can see this in terms of comparing the value of US Dollars to currencies NOT being printed in excess, such as the Swiss Frank, the Canadian and Aussie Dollars, the Baht, etc. You can see the loss of value in the US Dollar when comparing it to the value of Dollar in gold (last graph). Gold is steadily gaining value vs the US Dollar, because of the printing of the US Dollar. This is DEFLATION. At the same time, we have INFLATION. This is the amount we have to pay in terms of Dollars. Inflation will continue to escalate as the Dollars printed cycle through the economy of the world.

Bernanke complains about DEFLATION, but deflation can not be cured by printing more Dollars.Meantime, PM prices in US Dollars are going up but in an orderly fashion.