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Supply and Demand in Gold Market

Supply and Demand in Gold Market. Deriving Demand Curve P e t +1 is held constant P t  , g e  , R e   G d  Demand curve is downward sloping Deriving Supply Curve P t  , more production, G s  Supply curve is upward sloping. Supply and Demand in Gold Market. Market Equilibrium

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Supply and Demand in Gold Market

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  1. Supply and Demand in Gold Market • Deriving Demand Curve • Pet+1 is held constant • Pt, ge, ReGd • Demand curve is downward sloping • Deriving Supply Curve • Pt, more production, Gs • Supply curve is upward sloping

  2. Supply and Demand in Gold Market • Market Equilibrium • Gd = Gs • If Pt > P* = P1, Gs > Gd, Pt to P* • If Pt < P* = P1, Gs < Gd, Pt to P*

  3. Changes in Equilibrium • Factors That Shift Demand Curve for Gold • Wealth • Expected return on gold relative to alternative assets • Riskiness of gold relative to alternative assets • Liquidity of gold relative to alternative assets • Factors That Shift Supply Curve for Gold • Technology of mining • Government sales of gold

  4. Response of Gold Market to a Change in pe • If pe 1. pe, Pet+1; at given Pt, geGdGd shifts right • Go to point 2; Pt • Price of gold positively related to pe • Gold price is barometer of p- pressure

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