What follows is an from the transcript of ABC TV's Inside Business program on 21/04/2013.
I would love to hear some thoughts about this.
MARCUS PADLEY: There's a theme underlying gold, Bitcoins and resources, which is all of them are based on something which is extremely hard to value. What is the commodity price that underlines the resources sector? How you value an ounce of gold it - it doesn't earn anything.
ALAN KOHLER: So, Mike, you sent me a long-term graph of the gold price during the week, which I found very interesting. What was that - what were you trying to - well how do you see the gold price?
MIKE MANGAN: Well gold has done pretty well over a long period of time, probably the last 40 years, but within that period of time, it's half and it's doubled and tripled and halved again. So it's been quite a ride. But certainly in the last 13 years, since about 2001, 9/11, or whatever it was, it's done very well. So, to me, this is a correction. I still think there is a lot of fear out there, there's a lot of disbelief in what central banks are doing around the world. And in fact you called argue that the weakness that we've seen in the economic numbers in the last week or two suggest that they're gonna have to do more quantitative easing around the world.
ALAN KOHLER: And what's been disappointing to everyone about gold is that they expected gold to keep rising because of the money printing, the quantitative easing that was going on because gold usually goes up as inflation expectations rise, but, Giselle, it hasn't.
GISELLE ROUX: But inflation expectations have not - have actually come back and in fact there's been no signs anywhere of emerging inflation and inflation ...
MARCUS PADLEY: That's what the bond market's saying as well, yeah.
GISELLE ROUX: Really, the bond market's saying the same thing. So without any inflation, there isn't really the strong rationale. I mean, as Marcus says, there's no fundamental behind the gold price beyond its marginal cost of production, which is somewhere probably at the total true costed margins, somewhere of $1,000. It's not gonna fall below that number or you start to get mine closures.
MARCUS PADLEY: Well, you will get mine closures. The long-term inflation adjusted price is $250 to $500.
GISELLE ROUX: But you can't - if you take the cost of extracting gold is very different to CPI that you would be calculating just off a (inaudible) CPI or another CPI.
ALAN KOHLER: A couple of American boffins put out a paper last year that valued gold according to inflation at $800 an ounce.
GISELLE ROUX: But that comes - again, it comes back to how you measure inflation as opposed to the cost of extracting an ounce of gold, which is very different to the CPI.
MARCUS PADLEY: But, you know, how do you - it's very different to every other commodity because what you've got is a commodity - whereas Nev Power's iron ore is gonna get used up next year and he has to replace it, the gold is cube 20.4 metres by 20.4 metres by 20.4 metres that is an inert lump of metal. And the only thing that's changing is a bunch of headless hot potato passers running around it deciding what price they're gonna pay. And the inert lump of metal, with all its brains knows that nothing's really changing.
MIKE MANGAN: And that's why central banks have how many thousands of tonnes in their vault?
MARCUS PADLEY: 'Cause it's stable!
ALAN KOHLER: In fact the reason - part of the reason the gold price fell was because Mario Draghi, the head of the ECB, has suggested that the way that the European countries need to get out of debt is by selling their gold, which has scared the pants off everyone.
MARCUS PADLEY: But the interesting thing is that there is no - all those apparently genius insiders with their reasons for buying it whilst the price is going up, have no reason why it shouldn't fall and they're silent at this point. Plus - let me just finish, Alan - this is exactly at the opposite end of the spectrum of what everyone's trying to buy at the moment, which is income. Zero yield.
