Ahh ... supply and demand, the two magical forces that free market capitalists hang their hat on. Conventional economics would tell us that the price of any asset is a function of supply and demand, and is typically set at the intersection of these two curves, see below. This relationship generally holds in the long-run, but short-term pricing has another component. You can call it psychology, emotions, or fear, whatever you like. In the short-run this intangible component can have a much larger impact on price than either supply or demand.
Let's take a look at the price of oil as an example. With oil spiking to its highest level in nearly nine months, it begs the question: has supply tightened or has demand increased?
On the supply side, if we compare current conditions to 18 months ago when oil was about $90 per barrel, we find that supplies have increased. We currently ... Log in or subscribe to continue reading.
Premium Content Notification
A subscription is necessary to access premium content.
Please use the button below to subscribe in order to access all premium articles