We can across this interesting article today from Zerohedge.com, which estimates that the average marginal cost for the production of gold is $1,300 an ounce, including capital expenditures. The price of gold at today’s close was $1,200 an ounce, which means that gold will stop being mined at current prices. Furthermore, South African miner unions are demanding a doubling of wages, so if anything, the cost of production will likely increase in the future.
This statistic appears to indicate that the price of gold is oversold in the market, and that simple supply and demand forces will likely push the price of gold higher. While it’s impossible to determine how high gold will go and in which time frame, it would appear as though gold is poised for a rebound.
We discussed in a recent article the five most common reasons individuals give for buying gold coins, and attempted to determine if any of those stated reasons has fundamentally changed in recent months. Based on our analysis, all of the commonly stated reasons for buying gold and silver coins are as strong as ever, and in fact, the case can be made that fundamentals may have recently improved from a precious metals perspective.