Why won't Gold drop to $800?

We are now 4 days into the correction with panic in the equitiy markets. This was supposed to be the event that drove Gold higher as folks flocked to "safety". That didn't happen.

The best I can tell, the cost to pull Gold out of the ground is still around $800 an oz. It is also a good rule of thumb to value a commodity at the cost of production. So the question is, what can stop Gold from dropping to $800???? Is there anything out there that will keep Gold higher. My bet is no, and $800 + or - is in the bag.

Mike

 

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What's the spot price of gold as of today? I haven't been keeping track but probably should with the market going funky as it is.

 

silver 14.08 bid
gold 1128 bid
2:05 pm EST

 

What's to stop the stock market or individual stocks to actually go to their true values? Same with the derivatives? I can pretty much guarantee that nobody knows... good trolling attempt though...

 

Many analysts say the market is correcting itself, so this could be why gold is not much affected by it.

 

Stocks are ALWAYS attempting to find their true value, but it is much more difficult as many more things come into play. With equities, you are trying to predict a future earnings stream. Commodities are much easier to value.

BTW, no trolling attempt here. It is a very valid point. If folks want to buy Gold they should really be thinking WHY they are paying a $300 premium over cost of production. It is even more valid now, since one of the reasons, (safe haven in equity panic) does not seem valid. Just a little bit ago, another reason for paying a premium over cost disappeared as it was common belief that the FED could not stop QE and the currency would continue to devalue. Poof, that one is gone. We are really running out of reasons here.

 

Ok, but the same argument could be made against stocks. All the QE liquidity overvalued them by whatever % you want to make up, and that will crush your portfolio. So what premium over actual value did you pay for your stocks?

 

Yes it can, and I wish I knew, but I don't. Maybe no premium at all. As I said, equities are very difficult to value, and I found it best not to time them based on valuation. A better strategy always been to hold it, and hunker down in the rough patches. Many fortunes were lost because folks tried to "do something" and the best solution was to do nothing at all.

 

Usually, for small investors, this is true of most investments. Most small investors always chase return, and wish to buy what is hot and sell after a downturn happens. The exact same reaction happens whether we are talking about stocks, bonds, PM, or land. Buying or selling on any unusual price change is usually a dangerous time to change horses. I lost some money in the latest plunge. What was my response? I transferred some money and bought a little more. Unfortunately tuition is taking a big old bite out of my rear, so I didn't have as much to transfer as I would have liked. Same with PM. Once premiums calm down, I will be looking to add to the pile some.

Btw, I am curious about the $800 per ounce cost of extraction. Is that taking into account the low copper, silver, and ancillary metal prices? Even then, is that the industry average or the low cost producer? Short and medium term is high average that usually drives price, since any lower and the higher cost producers go out and this has a market impact of taking production off the market, forcing prices back up.

 

Does not even cost close to $800 to pull a oz of Gold out of the ground.

Try 95% less then $800.

Its all priced on supply and demand.

All Base and PMs are very cheap to get out of the ground but only a few have the Legal right to dig and pull year after year day after day.

Gold will be $400 oz pretty soon just relax and wait. 2001 Levels are coming back in effect soon.

 

Chris,

The $800 may not be totally accurate since it is really not that easy to track, but that has seemed to be somewhat of a consensus of what I have been reading over the last 6 month. For the point of the post, it really is just there for a reference as folks are paying much more than cost of production (I believe that to be true even if the $800 number is low) and the original reasons for that are vanishing.

So far no takers on why Gold will stay high

 

Thats is just incorrect.....

 

I would not be surprised at all to see this prediction come true.

 

The day Gold drops to $800 is the day I will buy my first gold coin.

 

That would be lovely!

But I don't think those prices will last long, watch a bunch more people start investing in PM's at these low prices.

 

Why would that happen if they didn't jump in this week?

 

Ok, ok, I admit it, I bought some Calls today on miners ETFs, and a few more shares in specific miners to help balance out my PM proportions since the Real Estate % has jumped. Maintenance.

 

Or 2 weeks ago when it was 1070?

 

This is quite a bold prediction. I gave up on such forecasts years ago because I was almost always wrong. Ha, ha!

 

Production costs? Paying premiums over those costs? Why look at just gold? It's that way for anything, all precious metals, oil, gasoline, natural gas, coal. Why pay a premium for food? After all, the production costs to a farmer a little compared to what I pay in the market. It's called Supply and Demand. It's called Capitalism.