Elasticity and the Price of Gold

Gold is one of the most valuable gems traded in the market. The price of gold keeps on fluctuating as a result of various market-driven issues such as demand and supply. According to goldprices.com, the latest price for gold is $1,294.34. At the beginning of the day, the price was at $1,291.55. Between 7:30 am and 9:30 am, the price of gold had increased by around three dollars.

Over the past 12 months, several fluctuations have been witnessed in the price of gold in the market. The highest price for gold recorded in the last 12 month is $1,349.55, which was recorded on September 7, 2017. The lowest gold price recorded in that period was $1,128.20, which was witnessed on Thursday, December 15, 2016 (Goldprices.com).

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Assuming that these fluctuations result from changes in demand, the observed price changes would have been less if the supply of gold had been elastic rather than inelastic. In an elastic supply, the changes in demand are met without a substantial rise in prices, whereas in an inelastic supply, the supply of gold in unresponsive to the changes in demand, which leads to a massive rise in price. Elastic supply reduces the price changes of gold because the suppliers can produce enough gold to meet the rising or declining demand for gold in the market. For instance, when the demand for gold in the market increases, the suppliers can provide high stock levels in response to the demand. As a result, the changes in prices will be less because there will be enough stock in the market. On the other hand, in an inelastic supply, such changes are greater due to the unresponsiveness of the suppliers. For instance, when the demand for gold increases in the market, the supply does not change to meet the new demands. As a result, a shortage of gold is created in the market, which causes high price changes for gold. However, when the demand for gold declines, the supply remains constant. As a result, there will be a high supply of gold in the market with few consumers, which will result in a substantial decline in the price of gold in the market.

 

Work Cited

Goldprice.com. Historical Gold Prices. Austin Rare Coins, Inc., 2017. Web. 25 September 2017. Available at: < https://www.goldprices.com/live-gold-prices/historical-gold-prices.html>