EDITOR’S NOTE Too much gold?

Supply and demand. They go together like toast and jam, like Wayne and Shuster, like assets and liabilities. Together they form a classical type of economic balance without which economists would be unable to explain why prices fluctuate in a free market. If prices go up, economists can theorize sagely: “A contraction in apparent on-hand stocks has impacted on the supply-demand balanc e thereby resulting in an upward movement in net monetary payment” — there’s not enough to go around — or: “A fundamental structural demographic shift has resulted in reduced consumption on a per-capita basis” — nobody wants it. As a matter of fact, economists seem to come up with endless variations on the s ame theme.

That is until it comes to gold. Gold has an uncanny ability to confound the experts. In 1986, for example, there was a surplus of about 300 tonnes of gold. Jewelry, electronics, dentistry, other industrial applications and coins account ed for only 1,666 tonnes while world mine production and scrap recycling amounte d to 1,967 tonnes. An economist might say that’s a formula for lower prices — s upply is greater than demand.

Of course the exact opposite happened with gold in 1986. In January the price of gold hit a low for the year of $326 and closed out the year at $386 after reaching as high as $436. This year, led by increased mine output , supply is expected to easily surpass the 1986 level and demand is expected to drop because Japan will not be the aggressive buyer it was in 1985-86 when it was accumulating gold for its Emperor coin.

And guess what? Most money is betting that the price of gold will defy the law of supply and demand and go up.

The reason, of course, is “investor buying,” a term that is little more than a bookkeeping entry meaning “excess of supply over demand.” Invest or buying has little to do with supply and demand and everything to do with price. In fact, o ne financial consulting group says its research has shown that a rise in supply was associated with a rise in price.

The weakness of the U.S. dollar, a slow but steady increase in inflation and political tensions all combine to turn investors to gold. What could prove to be even more important, however, is an end to the 5-year bull stock and bond markets. If investors start to shift out of the markets into commodities, investment demand for gold — and therefore prices — could really take off.

So bring on the Hemlos, bring on U.S. heap leachers, bring on Porgera and the other epithermal gold deposits. It seems that there can never be to o much gold.