Gold has not had a good year. We all know that. But certainly, it must have a floor right? Truly gold’s price cannot fall below that of the price to mine gold…right?
The truth is there is no force in place to prevent gold’s price from falling below the cost to mine it. In fact, some gold mining companies have already seen the production costs outweigh the price of gold, meaning that they lost money mining for gold because they could not sell it for a profit.
All mining companies are different. There is a set price for an ounce of gold, but there is no set cost to mine that ounce of gold. Those companies that have higher production costs have particularly struggled this year, while those that are able to mine gold at a lower cost have seen profit margins decrease, but are still making a profit mining the precious yellow metal.
However, some mining companies continue to produce gold anyway, even for a loss, because in the bigger picture, a temporary period of loss is much better than shutting down altogether. A mine quickly loses value when it shuts down; equipment deteriorates after going unused, and the costs of stopping and restarting at a later date are quite large.
For gold mining companies, the lower gold prices seen this year are bad news, because it impacts their own bottom line. But for investors, this creates opportunity. Lower gold prices lead to better deals for end consumers, and mining companies that are just trying to keep operations afloat until the price dip passes are more desperate for business. The lower prices trickle down to the gold dealers and consumers who purchase the physical gold.
The price of gold is not determined by the cost to mine it. Rather, the price of gold has a direct relationship to demand. How badly do people want or need gold? That is what impacts the price. Gold’s demand has lost its allure this year, at least in this country, but the decrease in demand and price has allowed many people to purchase the metal in a low period. Smart investors will agree that gold is a long term buy. Even if you buy today and see a loss in a month, or in a year, history has shown that gold consistently rebounds in the long run. Latest gold and silver prices