Proof The Gold Price Based On Cost, Not Supply & Demand

The notion that the gold price is based on the economics of “Supply & Demand” turns out to be incorrect as the cost of production is the leading factor.  This is also true for most commodities and energy.

Unfortunately, economists and most analysts in the precious metals community will continue to believe that the economic principle of supply and demand determines price.  If we look at the data provided in this article, the individual will see how closely related the cost of gold production is to the spot price.

That being said, the information in this article is only to show the “commodity pricing mechanism” of gold, not its true store of value.  There’s a big difference which 99% in the Mainstream media do not understand… and probably a good percentage in the precious metals community as well.

Top Two Gold Miners Cost Of Production vs. The Gold Price

I decided to take the data from the top two gold miners, Barrick and Newmont, for this exercise as they are the largest two gold producers in the world.  Yes, I could have spent several days compiling data from the top 20 gold miners, but I don’t have the luxury of being paid by a financial institution for my analysis.  Regardless, Barrick and Newmont provide a good representation of the cost of producing gold in the entire industry.

According to my “Adjusted Income Approach” in determining the full cost of production, I constructed the chart below.  One thing that is not included in the adjusted income approach is dividend payouts.  I included this in my total cost per ounce for Barrick and Newmont:


Here we can see that as the price of gold increased over the past 15 years, so did the cost of production for these top two gold miners.  In 2000, the total average cost to produce gold for Barrick and Newmont was $243 versus the spot price of $279.  Thus, the average profit margin was 13% for these gold mining companies that year.

As the average price of gold surged to a record $1,669 in 2012, the average cost to produce the yellow metal for Barrick and Newmont increased to $1,386.  Yes, it’s true that these two gold miners enjoyed a 17% profit margin that year, but what is wrong with that??  Companies must have profits so they can pay for new projects, shareholder dividends or surplus cash for lean years when losses are incurred.

If we compare the increase in the gold price from 2000 to 2012 versus the cost of production, we will see a very interesting similar trend:

Gold Price Increase vs Cost Of Production 2000-2012

Gold Price Increase 2000 – 2012 = 498%

Gold Cost Increase 2000 – 2012 = 470%

While the average gold spot price increased 498% from 2000-2012, the cost of production for Barrick and Newmont jumped 470%.  To put it another way, the difference between the increased cost of production (470%) and the average spot price (498%) in the 2000-2012 time period, was a lousy 6%.

Does the gold mining industry deserve a paltry 6% profit margin over that time period??  Which means… the economists can throw out the window the worthless principle of supply and demand.

So, why did the cost of gold production increase so much since 2000??  Could it have anything to do with the increased cost of energy??  Well, yes it did.  I wrote about this in my previous article, Why Most Analysts’s Gold & Silver Forecasts Are Wrong.

In the article, I show how the price of a barrel of oil increased from $20 in 2000 to $112 in 2012.  Thus, the gold cost of production increased nearly five times on the back of a five times increase in the price of oil during that time period.

Now, if we look at the data for 2015, the top two gold miners profit margin fell to 3.8% as their cost per ounce was $1,116 compared to the $1,160 spot price.  The reason the cost of production declined in 2015 versus 2012, was due to the oil price (as well as other energy inputs) falling more than 50%.

Okay, I imagine many reading this article would wonder why I have stated that the gold price will skyrocket in the future as the price of oil collapses towards $12 by 2020.   This doesn’t make sense because a lower energy price would also dictate a lower cost of production… hence the gold spot price will fall as well.

As I stated in the beginning of the article, this information only pertains to the “commodity pricing mechanism” of gold, not is true “high-quality store of value.”  Gold or silver (to a lesser extent) are not commodities, rather they function as money or stores of wealth.  There is a much different way to attribute value to these precious metals than their cost of production.  I will touch on that at the end of the article, but there is more information about the cost of gold production we need to understand first.

Gold Cost Of Production Understated Due To Massive Share Dilution and Increased Debt

The gold cost of production for Barrick and Newmont are understated due to the massive amount of share dilution and increased debt.  First, let’s look at the change in outstanding shares for these two gold mining companies:


Barrick and Newmont’s outstanding shares have more than tripled from 526 million in 2000 to 1,695 million (1.69 billion) shares in 2015.  Basically, these two gold mining companies could not afford to expand production from just their surplus profits.  Instead, they resorted to issuing more shares to purchase new gold mines or fund new projects.

Which means, the shareholder took some of the burden for the increased cost or expanded production.  While its hard to put a figure on how much higher the cost to produce gold would have been if the shareholder was not used to fund this activity, we can safely assume that it would be higher than it is today.

Secondly, the total liabilities for these two companies have surged to $32.9 billion in 2015 versus $3.8 billion in 2000:


Here we can see that Barrick and Newmont’s total liabilities are nearly ten times higher than they were in 2000.  Of course, some readers will say that these companies expanded production and increased gold projects have also increased their total assets.  Yes, this is true… but, if we look at their net increase in gold production since 2000, something seems very wrong here:


The net result of the increased gold production for Barrick and Newmont since 2000, turns out to be 1.7 million oz, or 17%.  Even though these two companies enjoyed higher production in past years, they only produced 17% more gold in 2015 than they did in 2000.  Which means, a lot of their new projects were used to offset declines or shut-downs of other mining operations.

We can clearly see from the data above, these two gold miners cost of production would be higher if shareholder dilution and the increased debt was removed from the equation.

The Cost Of Gold Production is Not It’s True Store Of Value

While the data proves that the mining industry has used its shareholder and debt increase to artificially lower the true cost of producing gold, this is not the ultimate methodology to value gold.  Gold’s true value is not based on its cost of production, but rather it’s high-quality store of value as a basis of money in the global economy.

The reason the value of gold will skyrocket going forward is quite simple.  The world has been bamboozled by the Wall Street, Central Banks and the financial media to put 99% of its investment funds in Stocks, Bonds and Real Estate.  As oil production and consumption increased in the past, this allowed Global GDP and net worth to grow.

Unfortunately, the net energy of a barrel of oil supplied to the market has been declining which has pushed its price to record highs.  The first warning light was the U.S. Housing and Investment Banking collapse in 2008.  To prop up the system, the Fed and Central Banks have thrown in trillions of dollars of liquidity.  This has inflated the value of most Stocks, Bonds and Real Estate.

As the price of oil continues to fall, along with production, this will cause a huge DEFLATIONARY WAVE of destruction throughout the global economies.  The 99% of investors finally getting PRECIOUS METALS RELIGION, will move into physical gold and silver to protect wealth.

This will not be a matter of “Supply & Demand”, rather it will be due the world realizing how little high-quality stores of value there are in the world.  As most Stocks, Bonds and Real Estate values continue to plummet, more and more investors will seek the safe-haven status of physical gold and silver.

More details about this transition in upcoming articles.

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46 Comments on "Proof The Gold Price Based On Cost, Not Supply & Demand"

  1. There is another perversity at work: During boom times the cost of gold production goes down while societies total savings go up. The price of gold in boom times is thus free to decouple from the total savings.
    When the inevitable bust occurs the exact opposite happens: cost of gold goes up while total savings stagnate or decline. The decline (or stagnation) in savings pushes money of return seekers and true savers into gold.
    Hence gold and global productivity tend to leapfrog each other.
    As peak oil hits, it will be gold that takes the final leap.

    • Clif High seems to be paralleling Steve somewhat with energy tied to gold and silver. Silver , he feels will turn into a super nova relating to energy output. I happen to agree with this.
      He said “Gold and silver are going to rise relative to the falling currencies.  Gold and silver in actual purchasing power will also rise.  They won’t be saying an ounce of gold bought a good suit 100 years ago and an ounce of gold will buy a good suit now.  That’s going to change, and it’s also going to change radically with silver.  Also, in our data sets between 2019 and 2024, silver becomes the metal to have. . . . You need to have silver.  The reason being the innovations that will be occurring over those next five years.  Silver will become much more in demand than we can imagine now.”

      • Well, Clif’s track record is about as good as Steve’s when it comes to predicting the price of something. It’s interesting how all of these “analysts” were making price predictions years ago and now most of them make excuses for being wrong. If Clif is really correct and the DOW goes to 125000 then an “overpriced” house at $300,000 today will be selling for millions in the near future. Also, if Clif’s analysis comes from an internet datastream, isn’t it possible that the data could be tampered with. And even if the data isn’t tampered with, just because a billion people are tweeting something, it doesn’t mean that “something” will come true. His analysis isn’t a prediction, it’s just the current topics of the month and nothing more. I wouldn’t make any investment decisions based on has analysis.

        • True. And that goes for your and my words and opinions as well , Tim . It’s good to review and consider various outlooks . I never said that Clifs words were set in stone. (“Clif High seems to be paralleling Steve “)
          It’s clear that there are too many pieces to the puzzle for one individual to get it all right.
          With the way things in Washington , wall street , through the central banking system , the world arena ,etc. have gone , the right way to anything is nearly impossible to pinpoint.

  2. “Gold’s true value is not based on its cost of production, but rather it’s high-quality store of value as a basis of money in the global economy.”

    and that global economy is tied to the federal reserve fiat debt dollar, and will crash with it, meaning there will be little utility for money, thus very little use for gold, because gold stores nothing.

    “As most Stocks, Bonds and Real Estate values continue to plummet, more and more investors will seek [what they perceive to be] the safe-haven status [for their lifestyles of living off of the labor of others] of physical gold and silver.”

    what they will find is that the gold they acquire will not help them live off of the labor of others any more than the dying fiat debt.

    “because of my superior wisdom I have all the gold and now you all work for me!”


    “now we don’t.”

    • Bullshit gman. In a crash, food, safety, water will be the most important things to have. Next comes tools, skills, tribe, and the ability to trade –>> physical gold & silver.

      With 30.000 ounces, of course, we won’t work for you. We will kill you. However, maybe i’ll join your tribe for one ounce a month.

    • gman,

      Good for a laugh but you missed an important point;

      “and that global economy is tied to the federal reserve fiat debt dollar, and will crash with it, meaning there will be little utility for money, thus very little use for gold, because gold stores nothing.”

      Fiat dollars, yen, yuan, pounds, etc. are not money but currency and no more than IOU’s. Gold and silver are stores of energy value and are real money. Always have been, always will be.

      When the fiat house of cards comes crashing down, there will be no new supplies of oil, gold or silver so the existing supply will skyrocket in value.

      Let me put that into perspective for you; there is the same amount of energy (Btu’s) in 10 gallons of heating oil (current cost $24.00) as there is in a face cord of hardwood (a stack 2′ x 4′ x 4′ current cost $65.00) and it takes a skilled man (or woman) without a chainsaw and hydraulic splitter about 10 days at 8 hours per day to cut, split and stack the wood (Current cost by hand $680.00 at Michigan minimum wage of $8.50 per hour). If all you had was wood, would you rather carry it around trying to trade for food for your family or maybe a couple of pieces of silver?

      There will always be a need for money and the only things that have worked consistently and satisfied the requisite definition of money are precious metals.

      • “Gold and silver are stores of energy value.”

        no they’re not. they serve as money to facilitate the trade of existing goods and services, and are NEVER worth more than what is for sale at any given moment. g/s themselves store nothing. if you don’t grasp that then you don’t have a clue what’s coming.

        “When the fiat house of cards comes crashing down, there will be no new supplies of oil, gold or silver so the existing supply will skyrocket in value.”

        absolutely correct. what you fail to grasp is that everything else besides the utility of g/s as money will skyrocket in value much much faster. there will be no need for money until an alternative economy gets started again, and how/if/when that happens is anyone’s guess.

        • gman,

          Let me guess, you live in or near a metropolitan area, so your are right. Where I live, a lot of my neighbors still don’t have, use or need electricity.

          I am planning on things being a whole lot different here.

          • “I am planning on things being a whole lot different here.”

            yeah, let us know how it goes when a rogue army or national guard unit with mortars is traipsing through the neighborhood. ’cause they will.

          • “Let me guess, you live in or near a metropolitan area”

            no, desert. lots of nothing. when a hundred thousand rv’s roll out of the big city looking for a safe place, they’ll just drive right on by ….

          • gman,

            Nearest neighbor is over a mile. Think Francis Marion.

          • “Nearest neighbor is over a mile.”

            and each inhabitant location is a plum ripe for the picking.

            “Think Francis Marion.”

            yeah, won’t work. you don’t have any toys they won’t, and they’ll have more, and lots of other toys you don’t.

            and there’s another issue. it’s not just outsiders who will be after what you have. it’ll be insiders too.

            and there’s another issue. as has been pointed out elsewhere, the easiest way to deal with what is coming is not prepping to survive, but prepping to take what those like you have. zillow data, gps coords, group training – all happening right now. yeah you may group train too, but you’ll be on the defensive and they’ll be prepared to wait.

            in low-civilization societies, free men are few and far between. there’s unarmed peasants who pay, and then there’s lords who take, and then there’s the soldiers who work for the lords. not much else.

          • gman,

            It is not just about the stuff you have but about the skills you have. As a founding member of the Michigan Pyrotechnic Arts Guild, I doubt there are many with the knowledge and raw materials that we have.

            The problem with your theory of lords and their minions taking rather than prepping, is that they would have a hard time taking the earth and watershed we have, not to mention how are they going to get here. There won’t be any fuel for motors and I doubt that more than a couple of percent of the population today know how to bridle and saddle a horse, much less how to ride one. Certainly the minions don’t, just a bunch of horse loving girls and wanna be cowboys – real cowboys today use quads.

            The barbaric feudalistic social paradigm you suggest may, in fact, spring up around large metropolitan areas where a small group could control an essential asset like potable water but will ultimately fail due to starvation due to lack of energy sources. Takes a lot of fuel, whether it be gasoline, hay or grain to mobilize even a small band of bad guys. The longer they wait, the harder it will be.

            There are very few unarmed peasants in northern Michigan, think Tim McVey and the Michigan Militia. Just because they have gone underground doesn’t mean they are gone.

            The “low civilization societies” only exist in America in it’s big cities. The bulk of rural America is highly civilized, in touch with the land, extremely well armed and will survive the coming crash.

    • You will need gold/silver to trade and exchange goods and services, especially big ticket items such as homes and cars. This has already happened.

  3. “Pricing” in fiat currencies is a rather strange habit. Maybe it has something to do with confidence.

  4. Spot price follows cost of production. Could it be that the honourable gentlemen that determine the spot price take a look at the cost of production before their morning sigar? Just above cost of production to keep the business running, the rest is casino chips. Very good helicopter analysis, again. We can extrapolate this to the whole economy. As soon as the fogs of fiat are being confronted with the winds of reality, the stores of stored energy will reopen.

  5. There may be an issue with cause and effect here in your article. If the mining companies target a 15-20% hurdle rate then there cost will definitely follow on the ups and downs in the gold market. This still has an element of marginal cost of production which is how Supply and Demand are supposed to work (near some stable equilibrium). From following your site, I’d say your point is at many times the near equilibrium assumption may FAIL. This would lead to some disorder until possibly another stable equilibrium is found (or not as the planet if FINITE).

  6. Steve, I don’t own any silver mining shares and I was thinking of buying some just recently do you have any suggestions? I see bill gates owns a chunk of pan American silver this is why I have decided to maybe buy mining shares in silver.

    • A bet on shares is a bet that our current system will keep functioning as is. I.e. that the bet will be paid out.

      Nothing wrong with that in complement to owning g/s.

    • Bill Gates has also been interviewed about Crypto currency and his feelings that we are heading in that direction. How might that affect gold/silver and the way we look at currency?

  7. Steve seems to ignore the fact that the gold price, or its avilability is based on fear, the fear of not being able to buy gold. As people lose trust in paper values, they naturally move from these investments to physical investments. The whole idea that the gold price is based on the cost of production is an invertion of the truth.
    Take water, for example its free or as near to free as matters when taken out of the tap, but people all over the world buy it, by the bottle for dollars. now you could say that the cost of the bottles is reflective of price production. But people are paying for its utility value not the water.
    Gold has a negetive utility value utiltity value, in the current system, as all transactions are in paper currency. If you buy gold, you pay for the privilege of doing so because you lose money in the short term and you have to pay for its storage insurance etc.. .And if its price rinses potentially you have pay tax on the gains. There are so many reasons not to buy gold, its a relic etc. So these factors, lower its price.
    Indeed the gold price is valued in a paper market, which goes up and down.
    In fact over the last 11 months that gold price has gone from just over 1000$ to what ist now about 1275$. Energy costs have come down over the last 12 months, therefore mining costs should also have fallen and if gold is priced by the cost of its acqisition its price should also have fallen, instead of rising.
    Mining companies will make money raising capital and investing in the stock market in an ever rising market, which the government needs to stop the whole economy collapsing. (watch laurence kotlicof on greg hunter).
    The mining companies could be leasing underground gold, or borrowing against it why not its their asset and it saves the cost and trouble of mining, they can trade it, in the markets or borrow against it and invest in the stockmarket which is more profitable than mining gold or doing any other work. With stock prices rising they can borrow against these assets at near zero rates and as the stock goes up borrow more. This means that they can avoid paying tax. . Who’d mine gold at extraction rates at 1 to2 grammes to a tonne of rock. Think about it. Theres more money in nearly every other form of labour.
    Throughout history people have spent more money mining gold than there is gold, so why would anyone think that its any different now? Golds true value becomes apparent when all else fails
    Take a look at this quote;
    We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K. – We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K. – Eddie George, then Governor of the Bank of England, 1999
    The price of gold is kept down by manipulation which has been admitted by the banks including deutche bank. This has been going on since the london gold pool in the sixties and prior to that the price was fixed by government, so there has probably not been market value for gold based on production or market forces for over a hundred years.
    Low prices a maintaintained by fear of the establishment and high prices are the result of a greater of the rest of us and the fear is kept in abayance with the use of propaganda.. Production costs are irrelevant

    • The profits are made in rising asset prices and in a ponzi scheme they keep rising until it ends.

      • So, would you say, that if gold is valued by its cost of production, then what about the value of the dollar?, after all, a dollar costs under 3 cents to produce, then why isn’t its value the same as its cost? I’ll save you answering, because its a con trick, that only works by keeping the price of gold down and forcing people to use dollars.

  8. CFO point of view | October 29, 2016 at 4:05 am |

    Please check another way to look at this issue:

  9. OutLookingIn | October 29, 2016 at 9:04 am |

    NO BID.

    A time will soon come for gold when it goes “no bid”.

    After a very short deflationary episode, currency supply will go into hyperdrive, pushing across the board prices skyward, triggering the start of a catastrophic hyperinflation.

    Irrefutable, solid, basic FACT: Gold and silver hold their value through ALL times.

    As the last sight of the ship sinks, it is much too late to look for a life jacket. Prepare now.

    • Indeed, oli. The ‘no bid’ goes for food too. Almost at the same time. When gold goes no bid, the next day, beans will go no bid.

      • The question remains when speaking of “no bid” if that will be qualified with “accepting no “paper” bid” , accepting only pm bids.

        INMHO are talking “no bid” or really “no ask”? If indeed there is someone with an over supply of beans, he will be doing the asking, and he will sell only for something the cobbler in the next town will accept.

        To a farmer heaven would be a time when we set price rather than now when we accept price.

    • “After a very short deflationary episode, currency supply will go into hyperdrive”

      aren’t the hundreds of trillions of dollars of derivatives that hyperinflation now?

      the serious hyperinflation will occur behind the scenes, be computer algorithm driven, and probably begin and end in one day. all we’ll see is the “deflation”, the defaults, and the asset confiscation.

  10. You can look at this another way by including the net energy available per barrel of oil.
    These numbers are just for illustration although they reflect the changes that have occurred.

    In the year 2000 if oil cost $20/barrel but the net available energy is only 20% of the barrel then
    $20/.20 = $100 would be the cost for the net available energy per barrel.
    Similarly, in 2014 just before the crash in oil prices the cost was $100/barrel, but now assume that
    the net available energy per barrel is only 10%, so $100/.10 = $1000 for the cost of the net available energy per barrel, which is clearly not sustainable by the economy.
    Now we have $50 oil and 8% of the energy in a barrel is available so $50/.08 = $625, still too high but it
    has come down.
    Taking this view then as the denominator, net energy available per barrel, continues to decrease and
    approach zero then the numerator, price per barrel, will have to decrease to keep the result from
    increasing too quickly. If net available energy per barrel decreases to 1% then even at a price of
    $10/barrel the result is $10/.01 = $1000, back to the cost in 2014 before the crash and not sustainable.
    This cost is directly fed into the energy costs for production of gold and silver by the reduction of ore grade and hence the increased use of energy for processing the ore.

  11. I always find it rather comical to see a writer give the metals credibility based on their historical use in the Bible, and at the same time give no credibility to what the Bible has to say concerning the future.

    • I think there has been good discussion about oil and pms at this site. For my 2 cents I submit that in the pioneering days, essentials were farmland, plow, cattle, flintlock. Not too many other items of necessity, which made gold valuation pretty straightforward. Now with the “dependence” on oil, energy, roads/ transport, electronics, internet and the inability of the average person to be self sufficient, gold may not be as highly valued as it was in the old days. I think it’s value will re emerge after the old fiat currency systems reset and true money as a medium of exchange becomes re established possibly in the context of either a depopulation event or a decline in the living standards of western ecomies which may still take longer than we think. No doubt the current tonnage of PMs in existence and the amount that will be mined in the future will affect their perceived value as a medium of exchange and store of value, but population growth, shortage of water and other necessities will re prioritize the value of gold as well. In short, impossible to predict, as much as alt-media and other experts may think.

  12. The “price” IS set by supply and demand – supply and demand of CONeX paper contracts and LBMA paper gold/silver,, at least for now. The real goodies are heading east and are gobbled up en masse. When this flow cannot be sustained anymore, THEN the “supply and demand” dynamics will start impacting the price in much more drastic ways than we have seen, but not before. When (not if) this happens all hell will break loose in the “markets”…

    • CHX,

      I would guarantee you this….. those setting the price via the COMEX and LBMA keep it close around the cost of production.


    • Seems when “supply and demand” is mentioned, only “demand” is given very much consideration.

      Producers who are the suppliers hope to make huge profits but they know they must remain in business so they have product to sell when the demand side does increase; therefore they produce just enough to cover costs.

      The psychology of those creating demand rules the markets and this can turn on a dime or perhaps the crash of one mega bank.

  13. The notion that the gold price is based on the economics of “Supply & Demand” turns out to be incorrect as the cost of production is the leading factor. This is also true for most commodities and energy.

    The greatest factor of Gold Production Cost is the Gold Grade or Gold Grams per Ton.
    The Global Gold Mining average grade of producing deposits is 1.06 g/t Au. The higher the Grade the
    lower the production cost. The net cost of Gold per oz can range between $500-$1200. All Gold Mining Companies costs for Oil/Fuel are base on the same PetroDollar market prices.

  14. Don’t forget foreign countries can decide to hoard their PM’s in a global financial crisis or just for political purposes. No exports of silver from Mexico / Peru or no palladium / platinum from Russia / South Africa could be a game changer in setting prices.

    • DisappearingCulture | October 31, 2016 at 7:10 am |

      Unless a hedgemonic country strongarms a weaker country into selling their silver etc.

      And impoverished counties need the cash flow, even if they aren’t geting a fair price.

    • I doubt that Mexico would restrict exports of all silver, but wouldn’t it be fun if they restricted all UNFINISHED exports, and fully-supplied their National Mint with silver for coins? The coins would move over borders jut fine, while being money and plata. .

  15. Virginia Knapp | October 31, 2016 at 9:41 am |

    Thanks for all the intelligent comments. You all make me think.
    Mostly I sits and watches.
    Steve, did you receive the hard donation I sent?
    Thanks for your thoughts and work and comments.

  16. IT Appears to me that both companies are screwed if things stay as they are.Let’s hope the halloween lady get’s in to save America.

  17. Dear Steve, this article is somewhat enigmatic and probably stems from some misunderstanding on the supply-demand model.

    Your main assertion is that production costs determine market price, not supply. However, production costs are the main component of the supply the curve. In classroom models, the supply curve is simplified to a function having quantity as the domain and marginal cost of production as counter-domain. E.g. to mine the first 1000 t the marginal cost is 1000 $/oz, for 200 t more the marginal cost rises to 1200 $/oz, for 100 t more the marginal cost is 1400 $/oz and so forth. Here is a basic example with a supply curve for apple production:

    Perhaps your point is that other components in the supply curve (e.g. taxes, transport, storage, stock movements) are not very relevant in the particular case of gold. If that is the case then you should start by addressing the huge volume of gold traded every year that is not mined. By demonstrating that the marginal costs of this, as it were, recycled gold is lower than mined gold, you start having a path towards your thesis.

    Finally, a note of caution on the usage of the word “theory”. The supply-demand model is not a theory, in the sense that it is not based on speculation or conjecture about facts. This model is used to study price movements, by capturing consumer behaviour and production dynamics into mathematical constructs. The supply and demand curves are built from observation, they are not assumptions.

    I hope you can successfully reformulate your thesis. Regards.

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