Elasticity of supply isn’t something that you hear much talk about when it comes to gold. Gold is so scarce that its supply is fixed. That means it holds its value better since it can’t be “inflated” like a typical fiat currency.
When it comes to the fluctuations that traders exploit, supply elasticity may have enough impact to be relevant for gold traders. This makes a strange connection to the recent fluctuations in crude prices. Of course, petroleum is often called “black gold”, but that’s because it’s seen as valuable. It’s not because crude oil can affect gold. But we are living in strange times.
What is the supply elasticities?
Elasticity is an economic term that describes how, when something becomes scarcer, people find a way to make more. Market prices drive the market to find solutions for scarcity. When an asset’s price increases enough, it becomes worthwhile to spend more on figuring out ways to find more of it, or create more of it, or prevent it from being wasted.
It also happens in the opposite direction. As…