This lower production cost of gold could definitely put a crimp into gold's perceived intrinsic value, based upon rarity.
I still look at the 14 years of gold production held by CBs, the lower cost of production for the metal, and the continuing lack of inflation in the global economy (in fact deflation is the true state), and wonder if we can compare the oil sector to that of gold.
The US is currently buying oil to place in its strategic reserve. We are doing this basically as a subsidy for those operators of "stripper wells" who produce some 1.3 million barrels a day, 10-15bpd at a time.
Reversing this scenario, were we to be in a situation where the gov't already held large reserves of oil, and a lower cost of oil production was creating a glut in the market, would there not be extreme pressure by producers for the gov't not to sell and add even more of the commodity to the market, depressing prices further?
My point being that it would make sense for the CBs to sell gold right now that they know that a glut is going to continue to grow as production costs grow lower, thus increasing the profits of the mining companies to produce more at these artificially inflated prices. But they are under heavy pressure not to sell, thus distorting the market price through their monopoly control of the market.
Would it not make sense to go short if, being a speculator, you realized that production costs were declining, prices were artifically high due to monopoly control of vast amounts of gold, and that the combination of the two variables would create conditions where mining companies had no vested interest in determining production schedules on an actual free market?
My feeling is that due to the increased profit margins for mining their gold, and the price zones for gold that are controlled by the CBs (they don't want the POG to markedly decline or rise), miners will sell so much production forward that two years down the line gold could plummet.
I also suggest that all of those people buying gold in preparation for Y2K will be the first to unload it once they realize that we're not facing TEOTWAWKI (at least here in the US). I've been following Y2K as actively as anyone out here for the past 3 years. I was attracted to buying gold based upon my discussions with others about the issue.
I have to admit, that with greater understanding of the interplay between gold and cash, that I'm leaning much more to holding as much of the latter as I can.
With gold you have too many miners cutting their own throats by overproducing and selling forward. If they are locking in profits at these levels, it is no wonder the short-sellers smell blood in the water.
Regards,
Ron |
