Gold Supported At $1,200 - Below That Level “Serious Production Cutbacks”

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Gold rose $3.20 or 0.25% yesterday to $1,257.90/oz. Silver rose $0.36 or 1.8% to $19.85/oz.

Gold is marginally higher in all currencies today. Gold appears to consolidating above the $1,250 level and strong support is at $1,200/oz.


Gold in US Dollars, 1 Year - (Bloomberg)

Demand for physical gold and silver remains robust. The U.S. Mint has raised its silver coin supply to 850,000 ounces this week. That compares with 761,000 1 ounce American Silver Eagle coins allocated last week, Michael White, a spokesman at the U.S. Mint, told Bloomberg. Sales by the mint last month rose to 4.775 million ounces from 1.2 million ounces in December.

The World Gold Council has confirmed that the all-in production costs to produce one ounce of gold is around $1,200 an ounce. A drop below that level  for a sustained period of time would have a significant effect on miners' production, World Gold Council Director of Investment Research Juan Carlos Artigas said yesterday.

If gold dips below $1,200 per ounce for a “sustained” period, serious production cutbacks are likely.

About 30% of the gold mining industry becomes unprofitable if prices fall below that threshold, the council estimates.

 

Massive capital writedowns from 2013, from the world’s largest gold miner Barrick Gold Corp. (TSE:ABX) among others, could also “impair future production for some miners,” said the council’s 2014 outlook.

Global mine production is likely to hit 2,980 tons in 2013, up 4% from the year before. Gold mines can take years to come online, up to 20 years after deposits are first discovered. The industry is also  beset by a shortage of qualified mining engineers.

 

“There’s a real cost of getting it out of the ground. And that cost has to be accounted for” said the Council.  The council’s view adds to existing research highlighting $1,200 per ounce as a key price threshold.

Declining scrap or recycled gold supply, which fell to a five-year low in 2013, exacerbates a “tight supply picture”, said Artigas. 

 

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