Monday, April 9, 2012

Production and Demand

The Trinity complex (PMs) move together in the long run, yet in the short term they don't move in lockstep.  Recent trends have shown platinum to be the more bullish of the three.  I do think platinum will be above $2000 next year, as it has a beta more similar to silver's, higher than gold, yet is more rare than silver and already past its peak of production (it peaked in 2009).

Silver has yet to peak its production, and it could be a few years until it does so, but from what we have seen from past production peaks, the peak happens suddenly and swiftly.  Once silver does peak its production, it will be the the last of the PM complex to do so, also joining oil and steel.  Silver's production peak is very important, for then no PM will come cheaply.

Supply is a very important piece of finance, especially as demand increases.  A rise in demand, which there is for PM not only to store wealth but also industrially, will increase price.  If supply can rise with demand, then price keeps equilibrium, but if supply stays flat or decreases, then the equilibrium moves to find a rise in price.

Since PM, other metals, and oil have seen a rise in price due to the value of fiat alone, their demand has increased, and this has led to supply being mitigated.  Now with oil higher in price, drillers are going after oil that is not just low hanging fruit, and this is the same for everything.  The supply increase will only last so long, and it will increase the sharpness of the downturn.  So when the downturn does happen, it will happen quickly and sharply.

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