Submitted by Tyler Durden on 12/02/2013
showed back in April, the marginal cost of production of gold (90%
percentile) in 2013 was estimated at between $1250 and $1300 including
capex. Which means that as of a few days ago, gold is now trading well
below not only the cash cost, but is rapidly approaching the marginal cash cost
of $1125... Of course, should the central banks of the world succeed in driving
the price of gold to or below its costs of production (repressing yet another asset class into
stocks) then we fear the repercussions will
backfire from a combination of bankruptcies, unemployment, and as we have
already seen in Africa - severe social unrest (especially notable as China piles
FDI into that region).
Which means that of the following mines (as we
showed here) which make up the gold cost curve, one by one, starting
on the right and going left, production is going to go dark, even
without the recent demand by South African gold miner labor unions to have their
wages doubled. Until eventually virtually no gold will be produced.
It is at that point where one must apply the New Normal supply and
demand curve, when one can predict a $0 per ounce price for gold, as
physical demand continues unabated, while actual physical, not paper, production
has now started going offline.
Joking aside, not even Bernanke, Yellen, or all the paper Gold ETFs
in the world will be able to do much to suppress gold prices from
reaching their fair value when gold production hits a standstill, and when
demands, especially by China, is still in the hundreds of tons each year.