Economists have a useful concept called “elasticity,” which measures how one thing responds to another.
For example, if the price of corn goes up, farmers plant more acres and produce more grain. The supply of corn is thus “elastic,” because it rises in response to higher prices.
In contrast, something that doesn’t respond to price signals is “inelastic.”
Which brings us to gold, the price of which has risen dramatically in this century:
Obviously, the market is telling gold miners to produce more metal. And if the supply were elastic — that is, responsive to price changes — the world would be awash in newly mined gold.
Is it? Nope. Annual gold supply has barely budged in the past 15 years:....
No Choice But to Buy the Juniors
The senior gold miners have to get new reserves from somewhere, and their only real choice is to buy explorers and junior miners with proven metal in the ground.
So the next few years will see our Portfolio’s list of such stocks steadily shrink — probably at nice premiums to the prices at which they were added. In other words, the real fun is just starting.
