With some people on popular cable shows once again predicting gold to drop to $1,100 an ounce or even lower, I thought this may be a good time to inject some real world numbers into the conversation by looking at what it actually costs to get the gold out of the ground.
Seeking Alpha had a wonderful series of articles by their contributor from Hebba Investments on the “all-in” costs of gold mining. Mining companies until recently only used part of their expenses in calculating cost-per-ounce, ignoring capital expenditures, etc.
Looking at the 2012 financials for the top 12 gold mining companies, we find that costs per ounce range from $1,057 for Alamos Gold to $1,423 for Kinross Gold (all numbers excluding writedowns.)
If spot gold were selling at $1,100 an ounce, only Alamos and GoldCorp would be making a profit, and only barely. Obviously, a price of $1,100 is unsustainable.
Some may point out that there are other sources of gold, such as recycling. Jewelry is a major source of scrap gold, which traditionally provides as much as 1/3 of global gold supply. However, TD Securities predicts that 2013 will see the lowest level in four years of gold sales for scrap by the public worldwide. The global shortage of jewelry, bars and coins at the retail level for the last month points to a new appreciation around the world by the average citizen who is looking ahead at what currency debasement and unbridled quantitative easing will eventually bring.