Prices matter. Or at least, they should.
They tell us about the relative value of things, and provide indication of scarcity or abundance.
If the price of coffee is going up, then it must be in greater demand and/or shorter supply. When more people demand something, prices tend to rise — at least until supply detects the rising demand and catches up.
How do producers detect that rising demand? Via higher prices.
Alternatively, how to producers know to begin cutting back and reducing supply? Via rising inventories and/or falling prices. Even if a given producer's inventories are lean, suggesting ample demand, falling market prices for their product will eventually trump their own inventory signal and trigger a reduction in production.
Looked at this way (which is Econ 101, by the way), prices are an important signaling device. Heck, the Fed even targeted rising equity prices as the means of signaling to people that all was well and that it was okay to get out there borrowing and spending again after the 2008 crisis died down.
Prices are the means by which we detect important economic trends, and whether or not critical over or under supply situations are developing.
Broken Signals
Over the years, we’ve focused a lot here at Peak Prosperity on the broken signals that we detect in the gold and silver markets. Supply and demand, that is to say the fundamentals, are pretty much useless indicators when it comes to predicting or even understanding the prices of gold and silver in today's world. Or at least they have been for the past 6-8 years.
Instead, the precious metals are mainly priced in the electronic futures market where the ”supply” and “demand” of computer generated gold and silver are essentially infinite. Regardless of whether mine output is down or bullion demand in Asia is up, what moves the price of gold and silver are the relative quantities of electronic trading that are being conducted.
The price of gold, for example, tells us literally nothing about how much is being physically demanded by China and India. It could be more than in all of history, or less than ever before — or anything in between — yet the actual physical volumes being moved will have an undetectable impact on the price of electronic gold on the US trading platforms.
by cmartenson 
