The majority of analysts still don’t understand that gold and silver are based on two different price or value functions. To understand the future forecasts for precious metals, investors need to the difference between the two value functions.
In my newest video update, Important Factors Impacting Gold & Silver Price And Supply, I discuss in detail the two different price functions and why the current commodity-based mechanism differs from the precious metals “Store of Value.”
In the video, I explain why the “commodity-priced mechanism” is important as a floor for the gold and silver prices. Unfortunately, because Harry Deny doesn’t understand this mechanism, he continues to put out faulty and incorrect analysis on the gold price. Dent stated in his April 13th video update that during the next deflationary collapse of the markets, gold would head back down to $900-$1,000 or the lows of 2008 at $700.
Dent’s gold forecasts continue to be wrong because he fails to incorporate the impact of “ENERGY” and the “COST OF PRODUCTION” on the gold mining industry.
I updated Barrick and Newmont’s combined total production cost versus the gold price for Q1 2020, and was quite surprised. Again, I explain why I don’t see gold heading anywhere near $700 due to the significant increase in cost to produce the yellow metal since 2006 when gold was the same price.
This video took longer to publish then I had planned due to the research. I was quite surprised to see Barrick and Newmont’s total production cost rise to nearly $1,400 an ounce for Q1 2020 versus the $1,272 average for 2012, when oil prices were over $100 a barrel.
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RMB,
Thanks for the support. I believe investors who understand how ENERGY impacts everything are a FRACTION of a FRACTION. Thus, those who follow the information on this website and the excellent comments by members are much more prepared for the future than the 99%.
steve
Great article / video as usual. You focused on why production costs have a floor to prices, but I was trying to think of a way we could get to $700 – $1000 gold.
1) If we have a financial crisis, and people need to raise dollars. If everything liquid if being sold, it’s possible physical selling could be so great it causes a knock on effect and drives gold prices down to these low levels.
2) Same scenario as above, but the paper price is what goes down to $700 – $1000. But you can’t find any physical at those prices.
I don’t think option 1 is at all likely. Central banks are the big holders of physical gold, and won’t sell to raise dollars. This is because most of the large central banks that hold gold also have dollar swaps with the Fed. The ones that don’t and have gold will likely not be in a position where they need to liquidate gold for dollars.
Scenario 2 is more possible. If institutions that hold lots of gold paper products need to raise dollars in a financial crisis, I can see paper prices crashing down to the $700 – $1000 levels.
But as you pointed out in the video, this is why you think physical is better than these paper products anyhow. 🙂
@ Mike. I have thought about the same thing where a lot of people had to sell physical to raise cash, thus driving the price down, and this did briefly happen a few months ago, but then if there is an “urgent” crisis where people had to rush to raise cash, (no more FED bailouts) it would seem that this would signal tremendous market instability and uncertainty and those who held cash or stock that could be liquidated would rush to buy Au and Ag, overwhelming the sellers.
In an orderly sell-off, I could see the price of gold temporarily dropping in accordance with the traditional supply and demand, but in a stampede, all bets are off.
Even in a stampede there are lots of highly liquid wealthy people to buy gold.
Yes. We hear a lot about those (many, I know) with little or no savings, living pay check to pay check. We don’t hear so much about the considerable percentage of those with wads of cash, just waiting for the right opp. They tend to keep a low profile.
Central banks ARE the FED.
“It’s all so openly corrupt but once again a smashing of gold couldn’t last more than a day.”
– Chris Powell, GATA
It’s interesting that the low price of oil isn’t slashing the production costs like one might expect. Correct me if I’m wrong, but I remember some of your charts from back in the day that showed a pretty decent correlation between oil price and metals prices. I also wonder to what extent the availability of credit to run the equipment, maintain it, replace the gigantor tires, etc.. will become an issue in the near future? For society at large, the plan looks like they want to push everybody towards a new fleet of electric vehicles but the unexpected roadblock for this is not high oil prices but rather that too many people are no longer credit-worthy enough to finance this whole new fleet.
I suspect the production costs haven’t been slashed yet because most of the miners have been shut down for the past 6-8 weeks. Once they all begin to reopen and start producing (at much lower energy costs) their production costs will go down, adding downward pressure to the price of gold. If the deflationary period lasts many months keeping oil prices suppressed, this will likely continue to add downward pressure to the price of gold.
This is not necessarily my opinion, i’m just using the logic from the article. It’s a scenario that could play out over the coming months.
As someone with a degree in Geology & knowing a little about mining, anywhere mining operations have been shut down for 6 to 8 or more weeks…I can tell you there will be a lot of expensive maintenance & repair on the equipment not operating for that amount of time. One problem after another.
Disappearingculture….. Just as a printing press(or any big piece of machinery), when shut down for a while, once you hit the switch to start again, all kinds of mechanical problems happen…… if one ever watches the Gold mining show, with Parker and Todd and the others, it is just as you say…. one problem after another. And, lots of down time. I’m just glad I started buying G & S way back in 2000…. I do sleep well at night(besides the aches & pains of old age).
I had some money in 2001. Wish I had been as aware/smart as you to invest in gold back then.
A Printing press is a poor example as the most important one in our lives has never been shut down only kicked into and infinite gear.
Could you use a different example next time. 😉
It has to be difficult to find worth while, profitable deposits of metals as well.
It’s hilarious to go over to kitco and listen to the interviews of aspiring mine start ups. None of them will ever amount to dirt. All that hype to suck investors in. I do like Keith Neumeyer, at least he seems honest.
Here a news flash that may not be popular for some/most. If you don’t have any pm’s by now, you’ll never get any. IMO, if all mining stopped, the earth would be a far better place. Mines are one of the biggest eyesores on the planet. Ridiculous amounts of fuel and energy are used relentlessly for items like, Au, Ag, copper, etc. that are treated like garbage by the scum of the earth bankers with their printing press.
But all that is soon to change…just happening in slow motion.
Hello Steve, thanks. Mostly compelling. However, as you know, the stocks make up for 98 pc of above the ground gold and if you can get their owners to sell cheaper to back up “derivative prices” (where necessary)… This applies esp. for cb’s which might want to see gold prices go down the drain.
The Head of State has the prerogative to over rule criminal law, thus protecting criminal behaviour for favoured people. The bankers are just such favoured people.
The Head of States prerogative cannot over rule the common law that protects people who do not consent to the government. Thus, corona virus legislation provides the required consent in the form of food lines. Once given by people, the consent is used by the Head of State to support the validity of his prerogative. His aim is to protect the bankers from fraud during the financial collapse.
When the collapse is complete then corona virus becomes the scapegoat for the failed financial system. Government and banks are sacrificed, the govt. for mishandling of the corona virus and the banks for the excuse of insolvency.
Consequently, the bankers get away with their ill-gotten gains, unchallenged by the law courts.
So, it can be seen that the combination of, coronation oath, the Heads of States prerogative, and consent by the public to corona legislation, does make crime pay!
I see the price of oil is creeping back up near $30/barrel. Do you still think we will see another round of negative oil prices?
Been wondering about that also. Good point.
Jared,
We may be seeing some increasingly VOLATILE oil prices over the next 2-4 days:
https://oilprice.com/Energy/Crude-Oil/Will-Oil-Prices-Go-Negative-Again-This-Month.html
steve
Steve,
You argue that the way miners report their AISC is bogus since it includes credits for metal byproducts. But what is the value of knowing the ASIC if all byproducts are worthless? At least they way the miners report ASIC it gives some idea of the mine’s profitability.
The belief that gold cannot fall to $1000 because that is below the cost of production is faulty. Above ground gold increases only about 2 or 3% per year. If a price decline caused production to go to zero it wouldn’t materially affect gold prices.
John,
Two points:
1) I didn’t say by-product credits are worthless. Rather, I said by subtracting by-product credits to show a lower Silver Cost is DISENGENOUS for investors. There is a better way to show the REALISTIC COST to produce silver.
2) Your assumption disregards the EROI or Thermodynamics of VALUE. Economics 101 of Supply and Demand is also Faulty because it totally disregards ENERGY. Energy is the number one factor that controls the PRICE and VALUE of most GOODS and SERVICES.
For example. There are approximately $470 trillion in Global Assets, mostly Real Estate, Stocks, and Bonds. The value of these “supposed” assets are based on burning more energy each year. Thus, their value is highly inflated due to the PERCEPTION the world is run by ENERGY TOOTH FAIRIES. Now that energy consumption and production took a MASSIVE HIT, the entire Financial Ponzi Scheme comes crashing down.
Thus, the Gold and Silver Price (value) will disconnect from their COMMODITY BASED MECHANISM, to their role as HIGH-QUALITY STORES OF VALUE or MONEY when most all the other FINANCIAL GARBAGE implodes.
steve