In today’s episode, I want to talk about the demand decreases and what we’ve seen recently. More specifically, why gold and silver, appear to be defying the law of demand and supply behaving more like luxury item goods, status symbols, perhaps more than ever. And this might seem somewhat counterintuitive as most stackers tend to be regular people, not the ultra-wealthy.
Some might say that gold and silver are status symbols, but I would argue they are not. People don’t walk around flashing their gold and silver bullion (Reasons to Own Silver). Jewelry yes, but not gold and silver coins and bars.
The economic evidence is there. A Veblen good is typically defined as an item that sees an increase in demand when price rises. And of course, that goes against basic economic theory, the law of demand, that says as prices rise, quantity demanded will fall. So, Veblen goods are typically things like Luxury watches, fine wine, designer perfume and of course jewelry. In general, it’s a status symbol and that’s why people are willing to pay more (Why don’t more Americans buy Precious Metals?).
So, there’s a couple of reasons why this happens. The first and most important is that herd mentality, where people follow what others are doing or what’s popular and they’re scared of missing the trend. That FOMO mentality. There’s also that exclusivity mentality and we see that a lot too with collectable items as people want to have the unique coin where only 5 exist or the unique sports card where only 3 exist. Companies know this, and soon I’ll write about this (manufactured scarcity) and how collectable companies take advantage of unsuspecting consumers with this marketing ploy, but the important thing to remember is that for many items, items that appear rare or hard to get, people will pay a premium for them.
We have seen that gold and silver and other precious metals have been behaving like luxury items. And although it doesn’t really make sense on the surface, I think there is a few things going on.
(1) Demand has dropped because the FOMO mentality is gone. Many people jumped in during 2021 and 2022 trying to make a quick buck and left when the price didn’t soar. There was a lot of shortages for a lot of different products, and this drove people to buy more than they usually would.
(2) Another thing that is happening is it is a bit of a quiet in the financial news. No devastating financial news, or bank failures have occurred in 2024 as of this writing.
(3) One other reason is just affordability. A lot of people don’t have the discretionary funds to buy them. Food costs are still way too high and credit card debt continues to spike.
So, summing it up it’s strange that an item that isn’t really a status symbol is behaving like one.
This leads me to believe that a shoot up in price, a substantial one, would surely increase demand and also price once again, leading to an upward spiral that could price many people out of the market or at least limit their purchases.
We will see though if the traders would allow this to happen.
