Mining companies might rejoice at the rising gold prices, but they have a problem.
The supply of gold is inelastic, they are not able to increase the quantity supplied by 'producing' them.
Another factor is the cost of production as the process of gold mining is a costly process.
As such, they might not be able to capitalize on the current situation to maximise their total revenue and profits.
Gold mining companies in Senegal is facing this problem, read the article
With prices for gold hitting 26-year highs, mining companies are searching for new ways to extract every nugget from the ground. Yet they say they cannot substantially increase production - a limitation that could keep prices high for years.
Compared with oil, increasing the gold supply is a much more costly - and longer - process.
http://www.philly.com/mld/inquirer/business/14588798.htm
One question, ever thought of the reason behind the continuous rise in the price of gold?
5 comments:
bcoz the availability of gold is gettin lesser n lesser?
From: Ek Rach-0601F56076(2.6)
It could be because the demand for gold is increasing but with the supply limited, the suppliers best option is to raise the price.
Golds and factor of production are limited due to the price of gold increase. Golds are limited, if there is demand for it, the cost of gold will keep increasing. In this case, government should involve and set price floor. So that the cost of gold can be control till certain level.
-dunno correct or not- =.=''
I think that the rising gold prices is due to the excess demand and the limited supply. This creates a permanent shortage. However, this time around, the market equilibrium can't be corrected because of the high cost of production that causes the increase in supply of gold to be unprofitable. Therefore, the price of gold will continue to rise while the supply for it will remain stagnant.
Applying economics based on my understanding =)
scarcity
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