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Shrinking Gold Price is
Hurting the Mining Industry




Gold's spot price is getting closer to production costs. For investors, it's not just the market price that's important to watch, but also the mining-related news.

Gold has a production cost and it's factor that cannot be neglected by any serious investor. .
Various sources state various figures for production costs.
Production costs vary from mine to mine. But the overall production cost on a global scale for 2013 is estimated to be somewhere in the 1,000 - 1,200 $ interval - but this includes more than the direct cost of mining.

There are mines in Africa that aren't able to produce gold for less than 1,500 $ per ounce and there are some mines in Latin America that can deliver well under 1,000 $.
Profitability pretty much depends on the difference between spot price and production costs.
The reasons for varying mining costs across the World are primarily of: geological and chemical-, as well as of socio-economical nature.

Direct costs of mining gold are believed to vary between approx. 600 and 1,000 $.
It's cheaper to mine gold in North America than in Africa. In fact, it's almost two times more economic.
Ghana's Obuasi gold mine has the highest cash costs of gold exploitation - 1,519 $/oz in 2012.

The mines that have high production costs (closest to the spot price) are threatened by closure. Some mines will be reluctant to halt production at least for a while, until prices re-become appealing.

With current prices, we are currently around the level where mining gold becomes less profitable.

If gold's selling price doesn't cover the production costs, then exploitation won't be justified anymore. A pausing of production will occur in many mines around the World.

Lower production will automatically reflect in more modest supply. But current demand is already low, decreasing, in fact. Of course - we would have to separate the demand for vehicles, such as gold ETF's and the demand for physical gold.

Naturally: if the supply will be "too low" when compared with the demand, then a price increase will automatically follow.

Obviously, the price increase will stimulate producers to re-open their production facilities. Thus, due to higher demand, producers will struggle to increase the supply.

Currently, in 2013, the gold mining industry is suffering because of "too cheap gold". But the correction still doesn't seem to be over.

The yearly pullback is roughly 33 %, but theoretically gold could easily go to 40 % correction. If this happens, its price could go down to the 1,000's. We will witness many mines halting production, if this happens.





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