Gold is one of the important and natural sources available on the planet. In order to understand how the gold market determines the price of gold, we have to first dismiss the principle of supply and demand. The supply and demand forces are the factors that define the prices of gold, they do not factor all that much over the long term.
Who really controls the Gold Price?
If the gold price is paralleled the oil price, then who controls the price of the gold market? While I agree that the Federal and Central Banks are intervening in the gold market, they can really only control the upward movement in the price of today’s gold rates.
In the early 2000’s, the top two gold miners production cost was closer to the price in the market. However, after the US Housing and Banking Market collapsed in the year 2008, the gold market price moved up considerably higher than the cost of production. An analysis suggests that the today gold rate was starting to hear towards its high-quality store of value properties rather than the commodity pricing mechanism.
Like I have mentioned the involvement of Federal and Central Banks can be intervening in the market to control How High the gold price will go. That is a major difference here among today’s gold rates. So, those who continue to believe Harry Dent’s forecast that gold will go down to $700 an ounce, are not considering the Cost of the production. Harry Dent spends a lot of money advertising to get people to buy his books or newsletters. Touting a $700 gold price gets people motivated in buying what he sells.
Unfortunately, Dent, like most of the analysts, tends to leave out the energy in their forecasts. This is truly hilarious as energy is the leading driver of our economies, but not on the supply-demand or the finance.
The production Cost of Gold price Is Higher When We Consider Capital Expenditures
The net income and the adjusted income approach to determine the production cost of gold provides a much more realistic metric than the industry’s cash costs or all in sustaining costs. But when a mining company releases its income statements, they do not include their capital expenditures. Their net income doesn’t include the capital expenditures. To find out what they have paid in CAPEX, we must look at the Cash Flow Statements.
If we consider what Barrick and Newmont spent on the CAPEX and then deducted it from their cash from operations we would arrive at their Free Cash Flow.