Coming Battle Between Investment And Jewelry Demand?

That's what's forecasted by this Globe and Mail article, as is competition between both driving gold prices up:

Jewellers and investors are both chasing a limited supply of bullion in a gold rush expected to drive prices up this year.

The contest comes as jewellery sales bounce back, particularly in such countries as India and China, and investors continue to buy gold as a safe haven.

And with only 3,000 to 3,500 tonnes of new gold entering the market each year, the competition could be stiff.

"If investment doesn't slow down then you're going to have quite a fight between jewellery demand and investment demand and obviously that will raise prices," said DundeeWealth chief economist Martin Murenbeeld.

"The more investors pick off the less there is available for jewellers."...

Of note near the end is this preference from the CEO of jewelry retailer Birks & Mayors, Tom Andruskevich: 'Mr. Andruskevich said he prefers gold at around $800 to $900 per ounce... When prices go higher, he said designs often become lighter or more "airy."'


That $800-$900 figure meshes well with recent bearish forecasts which assume that the predominance of investment demand is ephemeral. The gold-as-investment "story" counts as a New-Era narrative, one that claims that gold prices will be permanently elevated from traditional supply-and-demand considerations.

On the other hand, an old stick-in-the-mud could point to the $200-$300 premium above what gold should be - absent that investment demand - as a sign that gold is quite overvalued, and is already in an all-out bubble. The two sides of the bubble question amongst serious gold-watchers tend to coalease around those two sides.

They are reflective of nascent-bubble conditions. As I indicated in the article that started this blog, a bubble gains traction when an asset gets well above historical norms and stays there. Not returning to the old-time fundamentals makes for a fertile field in which a New-Era story can grow. Should it, it inevitably overgrows and turns into a New-Era delusion once the full mania stage arrives.

Gold has corrected, but it's fallen nowhere near to the level it would need to for that premium to be erased. It's incubating, but it is on the cusp of an all-out bubble. Surprisingly high U.S. (and/or global) inflation figures are the most likely factor to kick the bubble into full gear.