Tag Archives: break even level for gold

Gold Miners And Gold Production Cost

This post covers a topic much talked about right now – the gold production cost for mining companies.

Just like we discussed a while back in the article on gold production break even level miners are having an increasingly difficult time staying profitable and generating free cash flow at current gold prices.

Recently, ZeroHedge wrote about this. According to Citibank,  “a combination of rising unit costs (15% yoy), sustained high capital budgets and a falling gold price have resulted in a fast contraction in margins – so much that no gold company under our coverage will generate Free Cash Flow at spot gold.”

See graph below for illustration on how much of the mining space is under water today.

gold-production-break-even

Read the full article here: http://www.zerohedge.com/news/2013-07-07/citi-no-gold-company-will-generate-free-cash-flow-current-gold-prices

This bodes well for gold prices as a diminished supply should lead to higher prices going forward even if demand should stay constant. As I’ve covered earlier, there are many reasons for why demand should increase going forward though.

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Does Gold Hold Its Value?

One common argument for gold is that it holds its value over the long term. But is this really so?

In his book The Golden Constant, Roy W. Jastram explains it likes this:

“Since the 14th century, gold’s purchasing power has maintained a broadly constant level. To put this in practical terms, an ounce of gold has repeatedly bought a mid-range outfit of clothing. This was true in the fourteenth century, when an ounce of gold was worth £1.25 to £1.33; it was true in the late 18th century and it remained true at the beginning of this century (2000 to 2008), when an ounce of gold averaged £269 or $472. Even the exchange rate between gold and commodities has been relatively constant over the centuries.

On the other hand, the US dollar that bought 14.5 loaves of bread in 1900 buys only 3/4 of a loaf today. While inflation and other forces have ravaged the value of the world’s currencies, gold has emerged with its capacity for wealth preservation firmly intact. Being no one’s liability, gold exhibits the same wealth preserving qualities in the face of financial turmoil, earning a reputation as a crisis hedge in addition to its credentials as an inflation hedge.”

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