Executive Summary

• Calculating the “floor” beneath which gold will likely not fall
• The coming Great Wealth Transfer, which almost certainly will occur in our lifetime
• How much to invest in gold
• How to invest in gold
• Exit strategies: when will it make sense to sell your holdings? And what should you exchange them for?

Why Gold Is A Good Value Right Now

The one place that I most like to buy any commodity is as close to its production cost as I can.  And that value for gold is both below its current price of $1,160 and rising steadily. In other words, there’s a floor under the price of gold which, like any mined substance, is determined by the cost to get more of it out of the ground.

As has been true for all mining and oil production, the all-in costs of getting gold out of the ground have been rising, and rising sharply, for many years.  As of Q2 2013, the all-in cost to produce gold, across the whole industry, was nearly$500 higher than the average price of gold.  More recent data is difficult to come by, and certainly mining costs must have declined with the cost of oil and the glut of Caterpillar equipment on the market,  but the all-in costs for the entire industry are very likely much higher than the current price of gold at $1,160.

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Today we’re seeing lots of signs of obvious distress among gold producers because the price of gold is below their cost of production.  As some of these miners defer or delay production this will cause supply to fall, even as demand continues to be very strong in China.

Half of Gold Output May Not Be ‘Viable’ as Price Sags: Randgold

Nov 27, 2015

Half of the gold coming from mines may not be viable at current prices, underscoring the industry’s need for consolidation and output cuts, according to the best-performing producer of the metal in the past decade.

“The more we continue to produce unprofitable gold, the more pressure we put on the gold price,” Randgold Resources Ltd. Chief Executive Officer Mark Bristow said in an interview in Toronto on Friday.