Gold's elasticity remains low due to current circumstances
The general inverse relationship between price and demand is a key fundamental in economics. A rise in price is known to shrink demand and vice versa. However, another important factor in economics is the demand elasticity, which can be interpreted as the percentage change in demand relative to the percentage change in price. Basic goods tend to be of low elasticity, thus the change in price has little effect on demand, while luxury goods are usually of high elasticity where demand varies greatly opposing a slight change in prices.
Consumption demand on gold has been somewhat slacking throughout the first quarter of the year, while on the other hand safe haven and alternative investment demand has surged. Gold has been of relatively low elasticity lately, especially with the ongoing Greek crisis, as investors overlooked high prices when searching for safe haven against economic woes.
Gold ascended 0.78% yesterday in New York to close at 1210.60, meanwhile silver climbed 0.56% closing at 18.05 and platinum rose 0.07% to 1519.00. London trading was relatively stable for the yellow metal that dropped slightly from the morning fix of 1212.50 to 1212.00 in the evening fix, a very mild change considering stock markets' huge leap yesterday.
Gold has remained stable despite FTSE gaining 1.97% and the German Dax rising 1.55%. Gold has also remained inactive above the 1200.00 threshold, even with a surging dollar.
Commodity indices were trading positively yesterday, which has continued today as we see the price of oil settling above 72.00. These factors ought to have a positive effect on precious metals in general and gold especially, however their effect was minimal when compared to that of the economic woes around the globe. Thus, our expectations of a rising gold in the near future remain relevant in the current situation.
Morning trading today is expected to be turbulent, but the general uptrend will remain unchanged due to woe in European countries and a possible spread of downside effect on growth, both of which could undermine the global economic recovery.