An increases in demand shall trigger an upsurge in gold prices and quantity equilibrium. The surplus demand will trigger prices to increase, and the price increases producers are enthusiastic to sell more, thus snowballing the output. An upsurge in the demand for gold with a reduction in supply of gold shall trigger a rise in equilibrium price, however, the upshot on equilibrium quantity is hard to determine (Rickards, 2017). For given quantity, customers presently put a high value on gold, and producers of gold must have an upper price to supply gold, hence, price shall rise as show in the above figure. The upshot on productivity will rely on comparative size of the 2 vicissitudes.
Rickards hold that “gold is a form of money”. This can be explained based on principle functions of money. Three functions of money include an exchange medium (most significant function), value store and account unit. Rickards is right to treat gold as a form of money. This is because gold has been used as medium of exchange to facilitate transactions in the paper gold markets in the article. Gold is generally accepted in the exchange of commodities and debt payment. It has also served as the store of value as well as a unit of exchange. Gold’s value can be stored over time and convenient means to store wealth. It is also a common standard for measuring wealth worth of commodities and hence a serves a unit of account.
This year a decline in global gold production is expected to be witnessed. This expectation will affect the gold price. This can be explained graphically as below:
The supply will decrease causing the price to increase and quantity to drop as shown in the figure above. This is because the decrease in production means a decrease in supply thus creating an excess demand at the original price. The excess demand triggers the prices to increase and the quantity demanded to drop (Jacobs et al., 2017).
According to the provided info in the article, I think that gold market is a perfect competitive market. This is because each firm sells undistinguishable commodity (gold) and they are price-takers and without control on price for gold market. Firms show comparatively minor market share and buyer emjoy complete info regarding gold and price charged. Gold market has free entry and exit (Batten, Lucey & Peat, 2017).
Batten, J. A., Lucey, B. M., & Peat, M. (2017). Deteriorating Complexity in Gold Returns: Evidence from the Compass Rose.
Jacobs, B., Subramanian, R., Hora, M., & Singhal, V. (2017). Market Value Implications of Voluntary Corporate Environmental Initiatives (CEIs). In Sustainable Supply Chains (pp. 319-338). Springer International Publishing.
Rickards, J. (2017). Rising Demand, Falling Supplies Equals Higher Gold Prices. Daily Reckoning , 1-3.