Pricing Gold In The Real World [SPDR Gold Trust (ETF), iShares Silver Trust (ETF)]

india-gold-etfJeff Nielson:  As we see the price of gold and silver dragged lower once again in our Hostage Markets; a reality-check is badly needed – since we certainly get no reality from the Corporate media. However, while the mainstream media provides no “reality”, it does provide consistency.

As any knowledgeable reader already knows; gold (and silver) is both a commodity and a “monetary metal” (i.e. real money). With respect to the perverse reporting of the Corporate media; the pattern has been unequivocal. Whenever it has some bearish fiction to distribute about the monetary fundamentals of gold; it treats gold as a monetary metal. And whenever it has some bearish fiction to distribute about the commodity fundamentals of the gold market; it treats gold as a commodity.

This relentless “heads I win/tails you lose” reporting is more than just biased and annoying. It is nonsensical. This point was made in a previous commentary, approximately a year and a half earlier. It revolved around a quote taken from the heart of precious metals propaganda: Basher Central – aka “Kitco News”.

$1,300 is not a sustainable gold price.”

What makes this mainstream quote of particular significance is that at the time it was made, gold was trading at $1389.60 (as noted in the article itself). With most gold miners claiming “all in” production costs of between $1100 and $1250/oz; what motivated the assertion that $1,300/oz was (is) an unsustainable price in the gold market?

It’s because contrary to the claims of the miners themselves; the “all in” cost of production they quote in their news releases/financial reports is not really the total cost of producing an ounce of gold. In the case of the senior gold miners (who produce the majority of the world’s newly-mined gold); these bloated behemoths do little actual exploration for gold themselves.

Rather; they rely upon the junior “exploration” mining companies to find most of the world’s significant deposits, and once these junior explorers find a large deposit (generally 5+ million ounces) these larger miners swoop in to buy these deposits, and often the junior miner, itself.

These significant “acquisition costs” are not factored into the supposed “all in” costs of production. But that is only part of the reason why the price of gold has to be significantly higher than these “all in” production costs, in order for the gold mining industry (and thus the gold market itself) to be sustainable.

In many industries; they can be sustained (indefinitely) by break-even prices for the good they produce. Shareholders may not be happy, but the companies do manage to stay in business. Not in the mining industry.

Because the mining industry produces a non-renewable resource; mining companies must produce a profit (and a significant profit) in order to have surplus funds to invest in finding new ore to replace what has already been mined. Without such significant profits; over the long term it’s immaterial if gold is priced at a break-even level – because there will be no ore remaining for these miners to process.

Here it’s important to pull out our dictionary, in order to introduce the drones of the Corporate media to a word with which they have no familiarity.

Un-sus-tain-able – (adjective) not able to be maintained at the current rate/level

When the Kitco talking-head previously acknowledged that $1,300/oz “is not a sustainable gold price”; what specifically did he mean was unsustainable? The gold market, itself. This brings us to the heart of the logical disconnect which separates the mainstream media from the real world.

Whenever any good/commodity is priced at an unsustainable level; there is only one Truth in that market: the price must rise. Otherwise (sooner or later) there will be no market. Through such under-pricing; demand will relentlessly exceed supply, and inventories will go to zero. That is the only “fundamental” of any relevance to such a market.

But with the price of gold below $1,200/oz (and falling); what drivel do we see from the mainstream media today?

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