Has Gold Hit Its Final Low?

It’s no secret gold’s value has been sliding over the past few weeks. The major story that has been driving gold prices recently revolves mostly around the Federal Reserve. It’s true that the monetary stimulus program is related to the performance of gold, however a new issue is on the horizon that some believe may help gold begin to turn around.

The Business of Gold

Taking precious metals from the earth and refining them is a costly process. From a business perspective, miners always need to keep the production cost of any given metal in mind. Mines have been created in the past 3 years that wouldn’t otherwise be in business if the gold price had not been closer to the $1,500 per ounce mark as it was previously. The real issue is that each mine has a production cost threshold they need to stay above to remain solvent. As gold flirts with the $1,200 per ounce mark it makes it difficult for some mines to remain profitable. Recently, Nick Holland – CEO of Gold Fields Ltd., said “The industry is not sustainable at $1,230 an ounce, which is where the gold price is at the moment,” Holland also stated. “We’re going to need at least $1,500 an ounce to sustain this industry in any reasonable form.” Furthermore, another market expert Tom McClellan from the McClellan Market Report Newsletter has said, “I have upside targets of $2,800 to $4,800 [per ounce] based on some technical studies.” More specifically he stated, “The moment that we see a big major gold producer announcing that it’s curtailing production that will be the moment that we mark the low in gold and I expect to have one of those announcements any minute.” Summarizing this point McClellan said, “We’re getting down to the production price of gold and they won’t continue producing gold unprofitably for very long.”

Looking at Demand

While it seems at the moment the demand for gold is in a bear market, many believe this decrease won’t last for long. When major gold producers start abandoning production it will be cause for a considerable increase in demand. If suddenly the source of gold begins to slow, it may not matter how the U.S. is handling its monetary policy. American Bullion is a trusted expert in adding physical gold to IRA and 401(k) accounts. The process is tax-free and hassle-free. To learn more about your options or to request our Free Gold Guide, call 1-800-326-9598 to speak with a Gold IRA expert today. Resources: Bloomberg, CNBC