Lear Capital: Gold Holds Near Cost of Production

 
on July 17 2013 10:46 AM

As we watched gold prices drop, the price predictions were flying.  Some predicted gold at $800 because that was the price justified by its measure against inflation.  Personally, I say … Not Likely!  The inflation data used and reported, over the last 10 years especially, is so skewed by changes to methods of measure, I don’t think you could use inflation as a measure of anything except what you won’t get in your Social Security check.

Anyone who drives a car, heats their home or buys groceries, knows in the real world, inflation is higher than that reported. For that reason, I say gold cannot drop to $800 an ounce.  I could believe $1200 is the floor when measured against actual inflation, not reported inflation.  And, frankly, that makes sense.

If there was so little inflation that gold’s inflation adjusted price would be $800 an ounce, why does it now cost $1200 – $1300 an ounce to produce it.  I got it!  Inflation!  I guess the rising cost to produce gold somehow failed to be considered in the equation.  Meanwhile, the gold price strongly resists holding at levels below even the lowest estimated cost to produce of $1200 an ounce.

As gold now approaches $1300 an ounce, the anti-gold rhetoric intensifies.  There are no shortages, the cost of production really isn’t $1200- $1300 an ounce and investor interest is waning.  As always time will tell, but the evidence suggests the gold price has found its floor.  But, that’s just my opinion. Agree or not, I invite you to follow me @DaveTheGoldDr to see if my opinions are just bullion.

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