Gold Drops Below Cash Cost, Approaches Marginal Production Costs

Tyler Durden's picture

As we showed back in April, the marginal cost of production of gold (90% percentile) in 2013 was estimated at between $1250 and $1300 including capex. Which means that as of a few days ago, gold is now trading well below not only the cash cost, but is rapidly approaching the marginal cash cost of $1125... Of course, should the central banks of the world succeed in driving the price of gold to or below its costs of production (repressing yet another asset class into stocks) then we fear the repercussions will backfire from a combination of bankruptcies, unemployment, and as we have already seen in Africa - severe social unrest (especially notable as China piles FDI into that region).



Which means that of the following mines (as we showed here) which make up the gold cost curve, one by one, starting on the right and going left, production is going to go dark, even without the recent demand by South African gold miner labor unions to have their wages doubled. Until eventually virtually no gold will be produced.



It is at that point where one must apply the New Normal supply and demand curve, when one can predict a $0 per ounce price for gold, as physical demand continues unabated, while actual physical, not paper, production has now started going offline.


Joking aside, not even Bernanke, Yellen, or all the paper Gold ETFs in the world will be able to do much to suppress gold prices from reaching their fair value when gold production hits a standstill, and when demands, especially by China, is still in the hundreds of tons each year.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
MrSprottJr's picture

Now, at the risk of being unpopular, this reporter places the blame for all of this squarely on YOU, the viewers.

SMG's picture

Oh Zero Hedge, you and your "reality".  Like that has anything to do with markets today.

Now tommorow maybe you've got something. 

dryam's picture

"supply and demand"?

I'm not familiar with that phrase.  It seems like I heard it a long time ago.  I think it had something to do with economics a long time ago.

AllThatGlitters's picture

Little bounce here...

Live Spot Gold Chart:

Looks weak, like it can't follow through. Which is why it probably will.

Chart looks dead to me, so expect a sudden surge higher.

Pladizow's picture

Mines should remain open, as its more costly to close and reopen when higher gold prices return, then continue to sell at a temporary loss.

Squid-puppets a-go-go's picture

well, we're gettin on 6 months now at costprice levels. How much fuel you think these mines got in the tank? 'specially when their trustees and shareholders look at the nominal returns being had elsewhere

GetZeeGold's picture



These are not the droids you're looking for.

OneTinSoldier66's picture

"supply and demand"?

I'm not familiar with that phrase.  It seems like I heard it a long time ago.  I think it had something to do with economics a long time ago.


I don't understand the price of Gold. I don't think anybody does.


Now, do I get a job with the Federal Reserve?

Debugas's picture

people buy gold when they do not want to spend their money but simply want to park their savings.

It makes gold prices very hard to predict because noone really knows what the needs of everyone else are

Four chan's picture

in the light of the world wide fiat explosion, pms are cheap at any price, which is nice.

fonestar's picture

All PMs are not created equal.  I wouldn't be surprised to see gold fall further as Bitcoin catches on and silver has more utility than gold.

Doña K's picture

Exerpt from the above article:

" BTC’s rapid growth, combined with a paucity of virtual currency regulation in China, has led to the commission of fraud only a week after the announcement that BTC China had conducted a record number of transactions globally:

GBL, a Chinese bitcoin trading platform that claimed to be based in Hong Kong, recently shut down – an event that might not be worthy of note had ¥25m ($4.1m) worth of users’ money not disappeared with it.

Speculation and fraud. Sounds like the real world to me."


Many happy returns mates


Occident Mortal's picture

I have been buying gold and selling the DJIA for a few days now.


Purely on account of this technical pivot in the long term data.


Buy -

Sell -


The fact that these key levels are being tested simultaneously and on crumbling volume is very significant. 


Now is the time to make the trade that everyone has been talking about for the past 5 years.

GetZeeGold's picture



We can't give Germany it's gold back because it's too cheap at the present time......maybe try back in a couple weeks.


We thank you for your understanding and patience.

Its_the_economy_stupid's picture

Price is irrelevant. It demand that must be controlled. 7 years just spreads out demand over a long enough timeline that Fed buying to meet delivery won't spike demand or meet a market that cannot deliver.

chaartist's picture

Don't you see a settlement issue with Bitcoin? you are playing very stupid ponzi game in my opinion backed by nothing. The soooner you get your cash out the better.



Freddie's picture

All part of the plan fro the banks to take over or own the mines or miners.

Doña K's picture

TPTB have been burning tones of newly created cash to push down gold pricing. That in itself forces the miners to hedge by shorting the price of gold. Thus, if the output is worth less after is mined, they make up the difference in paper gains and they are at equilibrium with expectations.

This suppression method that draws the participation of miners creates the downward spiral. However, there are limits to such extremes and once these limits are reached, Bernanke will be right that he does not know how the gold price works. He also cannot see bubbles.

We are FED-up with you slimy bastards.


GetZeeGold's picture



That gold crap is worthless.....have some freshly printed's still warm and has pretty colors.

Bay of Pigs's picture

Hey Plad, when do you become such a dumbfuck on gold anyway?

After you bought BTC?

papaclop's picture

Screw JP Morgan. Buy silver, buy all you can afford because it is deeply discounted due to criminal banksters.

TheHound73's picture

Cash-for-gold still doing brisk business. Pawn shops picking up slack from miners. Intrinsic value holding steady at $300.

Beam Me Up Scotty's picture

I would rather have a one ounce eagle with a face value of $50 and an intrinsic value of $300 than a $100 paper fiat Ben Franklin with an intrinsic value of $0.

ebworthen's picture

"Supply and demand" means gold should be at $12,250/ounce.

But that would be with the rule-of-law and without utterly corrupt central banks.

RingPeace's picture

I don't get it. I've been reading ZH and other sites for years trying to understand it all, but I can't. None of it makes sense.

Good news = sell. Bad news = buy.

Cure debt with more debt.

Pump ga-zillions of cash into the economy and the gold price goes down.

The signs of the economy recovering are lower wages, higher unemployment and more 'benefits' to an ever growing society in relative poverty; with even higher 'benefits' to the richest people on the planet.

I guess we are in the 'Twilight Zone'.

LetThemEatRand's picture


Kent Brockman: "Excuse me, did you see the six o'clock news?"

Comic Book Guy: "No, I get my news from the internet, like a normal person under seventy. Farewell, dinosaur."

Downtoolong's picture

Hey I get it, but, what more does MrSprottJr the reporter want from me. I just bought some silver today. If it ever becomes worth 1000 ounces of gold, I'll do the physidcal swap faster than an HFT algo.


fockewulf190's picture

I will.  Me thinks this latest smashdown is targeted directly at those gold contact holders standing for delivery.  The claxions are aauuuging louder than hell over at the Comex because they don´t have the gold to deliver, so they want cash settelments....NOW.  Phone calls were made, strings pulled, favors called upon, anti-gold rants on CNBS are commencing.  The bullion banks don´t give a flying fuck about the miners. It´s all about putting out the inferno before the Comex blows up and defaults, because if it does, gold goes to the moon.

Squid-puppets a-go-go's picture

inasmuch as china clearly sees this particular ruse, this tactic serves only to light their own fuse

fockewulf190's picture

Might be the case, but desperate times call for desperate measures.

MrSprottJr's picture

Time to crack open everyone's brains and feast on the goo inside !!!

XAU XAG's picture

they can have mine at $50,000 per oz


Pun intended!


In Weimar, you would have been begging for bread within 24 hours if you did that. 

2bit Hoarder's picture

they can have mine for 100 acres per ounce ...

Al Huxley's picture

Well, they insist on letting their competitor, who's production cost is 0, set the price in the industry, what the fuck do they expect?  Let them go dark, stupid fuckers.

new game's picture

i might add; cost of "fwd" production hedged in the "wrong markets".

debts a bitch bitcheez.

deserve what they get.

RaceToTheBottom's picture

Agreed.  The only tactical mistake nearly as bad would be squandering that advantage by letting GLD price drop so low that "real" economic forces must drive it back up.


Imagine how "they" felt when Gold was 300$?  It is good that we have had no inflation.... Whew....

Squid-puppets a-go-go's picture

the gold price in the next few months will be telling. If it drops lower such that many mines close, it means there is no secret agreement between TPTB and china, and they are just hammering gold to delay the disorderly collapse. if they allow it to maintain or rise a little to keep the mines open, it remains suggestive of facilitating the physical flow to the east

philipat's picture

Agreed. What they SHOULD do is form a Cartel, just like the Bullion Banks have.

Banjo's picture

nonsense paper gold will do the trick

max2205's picture

GDX got smoked today

El Hosel's picture

GDX has been in a relentless nose dive since $55 last October ( 2012 )...  Bent over and pounded, one throbbing red candle after another. 

Martel's picture

The biggest red candle has been saved for the final round. No lubing, fiat monkey has you. It's on like Donkey Kong, gold bitchez.