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Gold Drops Below Cash Cost, Approaches Marginal Production Costs

Gold Drops Below Cash Cost, Approaches Marginal Production Costs

Submitted by Tyler Durden on 12/02/2013 19:32 -0500

As we 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.


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I'm still confused

If it cost 1200/ounce to mine, then why in God's name would you sell it for less than that?


jonat3 above is 100% on target. This manipulation scandal underway right now is zillions times more serious than mortgage derivatives scams. We're on verge of repeat 1929.

Immoral funding of Military Industrial Complex by Federal Reserve and US taxation system must stop!!!! End illegal/unconstitutional wars! Preserve US currency!

I dont think you people are getting it?

There is a reason GOLD is cheap.

All the Central Banks, CHINA, RUSSIA & INDIA are buying GOLD at record levels. They need it as cheap as possible.


Because when the U.S defaults and can't pay the interest on treasury bills.

The world economy will panic and go to a default setting which is the GOLD STANDARD. When this happens the U.S will NOT hand over reserve currency, but more so expand.

The new reserve currency (my guess 2021 - 2025) will be a gold certificate issued by The world bank. It will be a shared reserve currency between U.S.A, CHINA, RUSSIA, GERMANY & maybe a few more.

If this does happen. (1) OZ of GOLD is set to be $50,000.

I know this is going to happen, just not sure when. It really depends how long the crooks at the bank can prolong this.

I don't believe this story.

The fact of the matter is that gold will rise if it becomes scarce or limited. It's the dollar that is collapsing. YOu can't print 85 billion dollars a month and think every thing will be fine. I'm buying both silver and gold, NOW, and in 2 years it will be worth $4,500 to $12,000 debt notes. Remember commodities are essential in this order: Air, Water, Shelter, Food, Clothes, Guns, Ammo, Silver, Gold, Sugar (candies, chocolate etc...), Soda, Cigarettes, and anything else you can barter with... What we believe, is, in reality.

When did common sense become a super power? –Patrick F. Holman

This story is not negative

This story is not negative for gold. It's actually positive. If the market had no manipulation, those gold mines would have never had to default. The only reason these mines default, is because TPTB are manipulating the gold price below the marginal production costs (for some mines). This results that the most expensive mines will have to default. But when that happens, there will be a thinner supply of gold versus an ever expanding demand, resulting in an increased upwards pressure on the price of gold.

Right now, these manipulators are shooting themselves in the foot by manipulating the gold price to be so low.

Every mine is different

To say that every mine has the same production costs is foolish.

From my understanding of mining. It can cost anywhere from $300 per OZ to $1100 per OZ depending on what part of the world your in and what type of mine you have.

Either way $1180 is the major resistance point. I would buy a lot at that price again!

it depends on the nature of the ore deposit...

some mines have higher concentrations of gold in the rock, therefore it requires less work to get the same amount of gold.. there will even be variations within the same mine

proverbs 20:15
There is gold, and an abundance of jewels;
But the lips of knowledge are a more precious thing.

This would be interesting if it were true

However, I don't see how it could possibly cost 1200/per ounce to mine gold as a production.

I suppose I can click on the article and read it, but that takes too much time.

Instead I am going to take the position that Gold can be mined just as cheaply as Silver which is about $20/ounce currently and still turns a profit. And yes, I do understand silver is a byproduct of mining other metals and all that jazz but I don't think anyone will ever convince me that it costs 1200/per ounce to mine gold.

Costs of mining.

"All in" costs, which include acquisition of land, geological exploration, permitting, equipment, labor, material necessary for the use and maintenance of the above, remidiation and reclamation, and hundreds of subcategories I have not touched upon can run into the billions $$$ before the first ounce of gold or the first ton of copper is refined.

I, as an occasional small scale miner, understand many of the costs involved. My forays to central Nevada take planning, negotiation with landholders including probable contract review by attorney, physical inspection, sampling, permitting from Federal, State, and local agencies, and a hundred other things before I am ready to set up shop. This is not cheap. While each mine is indeed different, none are cheap to operate. Those gold mines operating under $600 per troy ounce have very rich ore with circumstances that alleviate many of the costs to well below average. The average worldwide is still over $1200 per troy ounce in total costs, which is good when gold is trading at $1600, but is unacceptable at $1200 or even $1300.

Recovery of other metals helps, but is typically a minor boost in the overall productivity.

An advantage to the fall in gold is that I will have less competition for the same parcel of land, wether leasing from a landholder or filing a claim on eligible federal land. Many of the cash strapped speculators will abandon holdings or sell for what was, but a few years ago, below market value.

A disadvantage is that many Juniors that are cash strapped will enter bankruptcy with their holdings tied up in legal proceedings for months, or in some cases, years, thus removing potentially valuable ore from market. While this effect is usually temporary, some areas can be tied up in the courts for several years.

While many here want gold prices to shoot the moon, many that understand any part of the mining industry want stable prices, not volitility, so they can plan for costs, not be blindsided by them.

Your misgivings would have

Your misgivings would have been answered had you just clicked the link. I always need to shake my head when people forego reading. Information is a critical resource for us. Replies that haven't gone thru the effort are usually without much worth.

Some mines can mine gold cheaply. But in some places, it costs enormous resources to mine the gold, because it's deeper in the ground, etc. The most expensive mines are close to 1200 dollars. The only reason they even bother to mine that gold, even though the costs are so high, is because they expected the gold price to rise far more than it has.

Anyways, this is not necessarily bad news for gold bugs. If the supply of gold is restrained, because the most expensive mines default and cease production,it will be that much harder for TPTB to surpress the price. If demand keeps increasing more and more and supply keeps getting thinner-----> PROFIT!!

i see, so "some mines" cost 1200 per ounce

well "some mines" need to go out of business then.

sure, I can pan for gold in the stream in my backyard, but if it takes me 800 man hours to get 1/4th of an ounce, then I certainly need a kick in the pants.

Silver can be mined down to 1 oz per ton of rock

profitably, using heap leaching methods.

Gold is mined down to 1/64th ounce per ton, using the same method.


"Take hold of the future or the future will take hold of you." -- Patrick Dixon

You're right about leaching...

I used to do graphics for a company that leached gold. Those guys really do leach the gold right out of the soil on a molecular level. 90% of all gold is in the oceans, in smaller and smaller pieces. Very tough to mine.

When did common sense become a super power? –Patrick F. Holman