REPLY TO HARRY DENT: If Gold Is In A Bubble, Then Mine Supply Must Come From The Tooth Fairy

Harry Dent says gold is in a bubble, and according to his analysis, warns that it could go back down to $700.  If the gold price were to crash lower to $700, as Dent forecasts, then 50+% of the gold mining industry would have to shut down.  Why?  Because the top gold miners total cost of production is now above $1,200 an ounce.

Of course, Harry Dent doesn’t take into consideration what it cost to produce gold as he pays no attention to the impact of ENERGY on the market.  He, like many analysts, must believe that gold comes from the Tooth Fairy. And, maybe we can’t blame them as the world has taken energy for granted.  Unfortunately, the overwhelming majority of economists and financial analysts do not incorporate energy into their forecasts.  Thus, most of the market analysis today is seriously flawed.

Let me start with Harry Dent’s newest article, Gold Fails Bullish Breakout… Stocks Likely to Breakout Instead.  Dent provides the following chart and analysis:

(chart from Dentresearch.com)

Gold’s Bad Break

Peter Schiff – who is also living in Puerto Rico – emailed me recently and asked when I would turn more bullish on gold. My answer was $1,525. I have been eyeing that as the key resistance; if pierced, gold would have substantially higher targets –$1,600 to as high as $1,800.

But Tuesday’s news caused gold to fall sharply just as the futures markets showed gold breaking up to $1,540+… that would have been a clear breakout. Is this the end for gold for now, or is this news transitory? These two reversals in gold and stocks look convincing for now, and bullish for stocks.

Dent conveniently shows in his chart that gold hasn’t broken above the $1,525 level, but failed to acknowledge the huge $165 BREAKOUT  above the key 5-year resistance level of $1,360:

While Dent criticizes gold for not breaking through the $1,525 level, nothing goes up in a straight line.  The gold price shot above the 5-year $1,360 resistance level, which is now the new support level, by $165 in less than two months.  This is an excellent sign.  Of course, gold would hit some resistance at the next technical level of $1,525.  Thus, the gold price may need to consolidate a bit before moving higher.  Dent should know this, but he also seems to be conveniently overlooking the fact that stocks and commodities tend to correct lower after a large breakout.

I explain this in detail in my newest YouTube video update: Gold & Silver Continued Summer Rally Or Correction.

Regardless, Dent has been playing the ANTI-GOLD CARD for as long as I remember.  In his newest Gold E-Book, called The Great Gold Bust Ahead, Dent provides and an even lower worst-case level for gold of $400-450:

(chart from Dent’s The Great Gold Bust Ahead

It seems that Dent is providing a “Worst Case” $400-$450 gold price because, that is where he suggests the “Gold Bubble” began. If we take a look at his most recent gold chart again, I would like to fill in some important MISSING KEY FACTORS that Dent is excluding from his analysis:

(chart from Dentresearch.com)

First, you will see in the chart at 2005; this is where Dent labels the gold “Bubble Origin.”  And, if we just looked at paper charts for our analysis, then maybe Dent would be on to something.  However, these charts represent what is taking place in the REAL WORLD.  So, if we want to understand better what the charts are showing us, we have to look at the main factor that drives the gold price and market… and that is ENERGY.

Secondly, the gold production cost has been a reliable driver of the gold price.  As we can see in my new updated chart below, including Barrick and Newmont’s total gold production cost for Q2 2019, there’s a good reason the gold price hasn’t fallen to $700:

The total cost of production for Barrick and Newmont has ranged between an average $1,100-$1,200 over the past six years.  Furthermore, my analysis suggests that Barrick and Newmont’s total Adjusted Income Breakeven is now over $1,200 an ounce.

Okay, some skeptics who don’t believe that the gold production cost provides a floor in the gold price, let me present this chart:

Some precious metals analysts suggest that “Supply & Demand” forces are the real drivers of the gold price. However, if we were to ignore all the supply and demand statistics, we can clearly see that the oil price has been the leading driver for the gold price since 1940, and beyond.  Why?  Because, the oil price dictates the cost it takes to produce an ounce of gold.

Sure, if there were no demand for gold on the entire planet, then, of course, the price would be zero, but that isn’t the argument here.  Rather, Dent forecasts a lower gold price due to a coming recession, similar to what happened to the gold price during the 1980s.  Dent also provides these two gold charts from his Gold E-Book promotional link:

(chart from Dent’s Gold E-Book Promo Link)

Harry shows the 1970’s big gold bubble where it gained 2,000%.  However, Dent failed to show that the oil price, which is the foundation of the price of most goods and services in the market, went up more than 1,500% during the 1970s.  Please look at the following Gold-Oil price chart:

The gold price wasn’t in a BUBBLE has Dent stated, rather it was doing exactly what it was supposed to, protect investors and the public from inflationary prices.  If we go by an annual average gold and oil price, not the absolute Gold Peak that Dent used to get his 2,000% gain, we have the following:

Oil & Gold Annual Average Price Change 1970-1980

Oil Price = 1544% (15 times higher)

Gold Price = 1401% (14 times higher)

So, if investors wanted to buy gold, they were going to have to pay much more money for it in the late 1970s because its production cost had also skyrocketed.  Here is my chart of Homestake Mining and its cost of production from 1971 to 1979 (sorry, I did not have Homestake’s Annual Report data for 1970 or 1980):

Homestake’s production cost increased six times by 1979 to $247 an ounce when the average annual market price for gold was $306.  So, gold was clearly not in a bubble if we consider how the rising oil and energy prices impacted the production cost.

Now, it is true that gold fell from a peak annual price of $612 in 1980 to an average of $372 for the two decades 1981-2000, because the oil price had dropped to an average $21.77 for the same period.  However, even though the gold price fell nearly 40% from its 1980 high to that $372 price level, it was still almost ten times higher than its price in 1970.

Harry Dent is making the same mistake with his analysis of gold today as he did for the 1970s.  Gold fell to an average annual low of $1,160 in 2015, because the oil price had collapsed from over $100 down to $52.  But, the reason gold continues to remain in the $1,200 range, even with lower oil prices, has to do with the fact that ore grades continue to decline in the industry and are now more than 20% less than they were in 2005. So, the gold mining industry has to extract and process 20+% more ore today to produce the same amount of gold.  This takes a great deal more energy and money.

A perfect example of how falling ore grades impact the amount of ore extracted is Barrick’s largest gold mines in the United States.  Barrick’s Goldstrike & Cortez Mines in Nevada have seen their average gold yield decline from 5.3 grams per ton (g/t) in 2003 to 3 g/t in 2017:

Barrick’s Goldstrike & Cortez Mines had to double their processed ore to nearly 24 million tons in 2017 to produce about the same amount of gold in 2003.  Unfortunately, Dent and other analysts don’t pay attention to what is taking place in the gold mining industry.

Now, some mining analysts will disagree with the $1,200 total cost to produce gold.  They will say that the ALL-IN-SUSTAINING-COST (AISC) is closer to $1,000 an ounce… according to data put out by MiningIntelligence.com.  However, the AISC does not account for all costs and does not take into account the massive share dilution the mining companies have been forced to do to continue business as usual. The top five gold miners outstanding shares have increased from 1.3 billion shares in 2000 to 3.8 billion shares in 2018… nearly triple.

Yes, the gold mining industry could indeed continue to produce gold at $1,000, for a brief while.  However, at $700 for an extended period, it would shut down 50+% of the industry.

While Harry Dent’s analysis on the changing U.S. and global demographics is quite interesting, he doesn’t consider the Energy or the Falling EROI – Energy Returned On Investment and how that will impact that value of most assets going forward.  Harry seems to be guilty, as are many analysts, in believing in the ENERGY TOOTH FAIRY… abundant cheap energy forever.

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Billy Lone Bear
Guest
Billy Lone Bear

Steve would you say that perhaps the Gold to Silver Cost to Production Ratio (which I put at around 65:1) is more important at determining a price point than the natural 17:1 ratio/mining 9:1 ratio /above ground stock 3:1 ratio?

Giorgio
Guest
Giorgio

Biased analysis… HD has been predicting lower prices for years and years… now he’s focusing on this less relevant resistance point rather than on the breakout from a massive six years long base.
Sorry Dent, crappy TA, but hey, at least is coherent with your fundamental one.

Incredulous
Guest

On a different subject, the mint has only sold 3,000 oz of gold and 250,000 of silver so far this month.

Is everyone out there crazy, or what?

Jimmy
Guest
Jimmy

I think a lot of that has to do with the fact that something like over 60% of Americans live paycheck to paycheck. Here in Canada it is no different. Will be almost impossible to purchase precious metals living under those conditions. But nonetheless, I still think there are so many ignorant or crazy people out there.

ActionT
Guest
ActionT

Jimmy, My situation is much like yours (and too many others). Every payday, I would buy an ounce or two of silver. I found it to be a rather lengthy process moving forward. Any “windfall” funds that came in to buy more than the $40 for two ounces of silver I usually bought. Surprising to me was that in looking at my silver stacks growing steadily over time, kept me buying silver. I’ve been buying silver – on the way up and down. Most could afford to buy an ounce or two of silver each month. It doesn’t matter how… Read more »

DisappearinCulture
Guest
DisappearinCulture

I have to wonder about the accuracy of those numbers.

Jimmy
Guest
Jimmy

Which numbers were you referring to?

DisappearingCulture
Guest
DisappearingCulture

U.S. Mint sales figures [or what they have released to date]

Theravaida
Guest
Theravaida

Thought more about this (ignore Harry Dent reactionary MORON, not commenting on his stuff specifically) :

If there is an energy based catastrophic collapse, then the cost structure for maintaining precious metals securely can’t possibly stay at levels of today. Meaning, the vaulting costs including insurance & security fees for precious metals will have to become astronomically expensive under a new model.

Which security guards in their right mind would be willing to work to guard precious metal holdings of others, earning peanut salaries not able to pay enough for their own groceries & electricity bills in an “energy collapsed” world?

DisappearingCulture
Guest
DisappearingCulture

I think security guards would be willing to work for a steady salary…but if the word slips out that the place where they work has huge quantities of G & S they won’t want to be there when the public storms the place.

Theravaida
Guest
Theravaida

I feel spiking costs for maintenance of precious metals would be a “GOOD” problem to have & I’m in no way suggesting that such thoughts should deter anybody from purchasing them as safe haven shelter right now.

All I’m pointing out is that let’s not lose sight of the fact that owning precious metals will not auto-magically eliminate all the financial uncertainties like waving a magic candle.

(Obviously, I’m not referring to use case of an individual burying 5 gold coins or a silver monster box in his backyard, more about institutional pension fund level precious metal holdings.)

DisappearingCulture
Guest
DisappearingCulture

“While Dent criticizes gold for not breaking through the $1,525 level…”
Sorry Mr Dent, the price I see right now has slightly cracked $1,525 by about 68 cents. It might not close above $1,525, but it has cracked it.

Doc Rich
Guest
Doc Rich

I remember very well when Harry Dent was being interviewed on the “Financial Sense Newshour” in about 2006. When asked if he thought we could be reaching peak oil and he thought peak oil was nonsense. He obviously hasn’t changed his mind. There is a lot of people like Dent that although very intelligent are forever close minded in their thinking

Billy Lone Bear
Guest
Billy Lone Bear

Dents doing a stacked bet where if he’s right he’ll look like a genius, but if he’s wrong he’ll just be forgotten. I highly doubt we’ll see sub $1000 gold again, but we could see it drop back down again whenever the next recession kicks off.

Dennis Shumaker
Guest
Dennis Shumaker

Harry Dent and his sub $1000 gold call now
reminds me of Robert Prechter and his Elliot Wave gold call to be less than $100 back around 2001

Are they cousins?!

IMissLiberty
Guest
IMissLiberty

I can’t help but feel that perhaps these “resistance” levels are fluid like the dollar. Oil and gold are real things. My dollars look less valuable to me every time I see them. That could cause me to cut short how long I wait to buy gold. At any rate, since this was written, we’re above that resistance level.

keith
Guest
keith

Harvey Dent is trying to convince you to sell your gold so he and his clients can buy it.

HardcoreVeritas
Guest
HardcoreVeritas

The number one reason Mr. Dent is way off (and it really makes him look stupid) can be seen in the oil/gold price chart from 1971-1980 when the gold standard was removed and the dollar was devalued heavily. We are in the process of a world wide race of currency devaluation. There is no way oil or gold is going down from here….in dollars. Oil and gold prices are being artificially suppressed to maintain some semblance of control by TPTB. The days of cheap oil are almost over for good. Obviously the days of cheap gasoline are gone forever. Oil… Read more »

OutLookingIn
Guest
OutLookingIn

Its not that gold or oil is worth more, its the fact that the dollar is worth less. It takes more of them to purchase what you want to buy. Hence the price of that item goes higher when priced in any fiat currency.
As this process continues at a faster rate, currencies eventually become worthless.
Remember, price inflation is an economic event. Hyperinflation (loss of confidence) is a currency event.

james r
Guest
james r

Hairy Dent will be calling for $700 all the way up. He should be placed on ignore.

OutLookingIn
Guest
OutLookingIn

Ignoring, leads one to ignorance.
Mr. Dent’s forte has always been demographics, not precious metals analyst.
His papers on the study of populations – birth rates, death rates, movements, economic impact, racial tensions, etc. Provide many insights into the worlds present problems. So don’t throw the baby out with the bath water! I just don’t take his prognostications about gold seriously.

Paco
Guest
Paco

He has called 400 gold. With that opinion I can dismiss any thing that he can say of child ratios or any other BS as just nonsense. And he sells himself as Harvard graduate, as that communist temple means any productive endeavor. Besides the moron just spent 3 months in Havaad

Martin
Guest
Martin

One only needs to look at the Gold to Monetary Base Ratio to see Harry Dent has no idea what he is talking about.
https://www.macrotrends.net/2485/gold-to-monetary-base-ratio
Yes you could say the Fed will raise rates to 10% and reduce its balance sheet to 1B but if you believe that you are beyond help.

DisappearinCulture
Guest
DisappearinCulture

Way beyond help.

Bukharin
Guest
Bukharin

If someday Harry Dent and Bix Weir make a presentation on the gold price together, then I know the end is nigh.

OutLookingIn
Guest
OutLookingIn

Another week comes to an end.
Silvers overall open interest was at 234,432
It is now at 229,355
Showing a reduction of 5,077 short contracts
The fear factor becoming intense?

Paco
Guest
Paco

The Banksters are quietly turning silver bullish

DisappearinCulture
Guest
DisappearinCulture

Western individual banksters hold physical silver in disdain…it’s for commoners to hold…like clothing from a discount store. Unless they have it shipped to allocated storage where they never see it. They aren’t going to brag about or show it to their wealthy friends.
Their bank vaults may hold it like JPM.

EP
Guest
EP

Dissapear, maybe you should stick to collecting whine. I hear it ages well.

James Randolph
Guest
James Randolph

In which case, I’m proud to be considered a commoner. ALL of the silver I own I can touch. If I wanted paper, I can buy a ream (500 sheets) of it for about $5.99 at Staples. Choose whichever one makes the most sense to you (not you personally).

JR

joah
Guest
joah

Please be more neutral and stop those feuds w/ other people. This won’t help you either.
(Thanks)

DisappearingCulture
Guest
DisappearingCulture

Some people misunderstand others posts. From misunderstanding, they critique. You see it all the time on social media like FB.

joah
Guest
joah

I’m not talking about others posts, I’m talking about Steve’s type of handling other peoples opinions in the financial business: its totally okay to disagree or even disassemble other peoples statements but, please, w/o this direct type of aggressiveness. A little bit more staidly character would complement his excellent work much better.

KRCoin
Guest
KRCoin

Harry’s words went ,You just as well sell your gold, take profits because gold is going down to its $700.00 level. Does that not sound like financial advise to you. Im glad he didnt mention silver when I heard that or I would be on the warpath….