In this post we’re talking more about the gold production break even level.
We’ve talked about the serious state that gold miners are in previously. Bad acquisitions where some miners have paid way too much, have left them in a situation where they have excess debt and constantly need to raise capital. It doesn’t necessarily mean that the target of their acquisition has been bad, but then intermediate result will remain the same.
Now, this would be easier to handle if the spot price for gold was higher than it is. But with the current levels the situation will eventually become unsustainable.
Most miners have a break-even level for production that is around the $1250 area. The current spot price for gold is $1383, as of this writing. If prices are below 1250, then that means that these miners are producing gold at a loss, which will of course lead to insolvencies.
Less miners will mean that less gold will be produced. As with any resource, the cure for high prices is…..high prices. The cure for low prices…..are low prices.
Once these miners start going bankrupt gold supply will decrease and price will have to start going up. This is one, lesser discussed, drivers for the gold price. The same applies to silver, platinum and palladium. Physical demand as well as industrial demand is increasing while supply is decreasing. It’s not difficult to see the end result of this.
For gold specifically, I came across an interesting number. The often mentioned break-even level for production is as stated 1250. But, when one counts the “all-in” cost of exploration, production etc then the real number is closer to 1600. This means that most miners are loosing money already today.
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