Price of Gold - Supply side - If the price of gold were to go to $1000/oz., with a barrel of oil still under $40, a lot more mines would become profitable, and could add second shifts, third shifts, etc. Many base metal mines, which have trace gold, could turn on their gold recovery circuits and mine the part of the ore that have the higher gold values. For example, Newmont's (NEM) production cost is about $180 / oz, so they make $140/oz at $320 gold.
If gold were to stay at $2000/oz for over a year, again with oil under $40 / bbl. and most inflation under 10% per year, you could heap leach most of Nevada...
The gold mined this way would still not come close to letting everybody in the world have 1/2 oz. But, if gold owenership is limited to a few million gold bugs worldwide, this could saturate that demand in a year or two. Moe importantly, many gold bugs expect to do a trade - buy gold cheap (< $320 / oz.), sell it dear ($1000/oz.) and buy something else with the money. They may still hold on to some gold for safety or sentiment or to see if it goes to $1500/oz., but their plan is to sell the gold to either -
1) a greater fool, who thinks it 's going to $2000
or
2) the desparate, some one who thinks their currency will go away, like Argentina.
If number 2) happens, then the gold bugs win big. With 1), the gold bugs themselves become the supply... |
