Exactly denial, there will be a supply squeeze if prices drop lower. I crunched my own numbers yesterday and calculated the average global C3 gold cost to be about USD$1170/oz. This article from January seems to somewhat agree with me, suggesting average all-in costs are also around $1170/oz.
All in costs are rising for many reasons: lower grades, deeper deposits, increased energy costs, rising labour costs, consumer inflation and generally more intricate and expensive infrastructure to deal with the gold ore of the present rather than the past.
The point of all of this is to look at how the POG has tracked with all in costs throughout its floated history.
Has the price of gold ever fallen below the average all in cost of production, which is currently somewhere between USD$1150/oz and USD$1250/oz?
1976 - all in costs of $93/oz vs the low of $100/oz.
1985 - all in costs of $162/oz vs the low of $284/oz
1999 - all in costs of $233/oz vs the low of $250/oz.
2008 - all in costs of $633/oz vs the low of $682/oz.
2013 - all in costs of ~$1200/oz vs yesterday's low of $1270/oz.
The price of gold came within 7% of average costs in 1976, 7% in 1999 and 8% in 2008. Yesterday when POG hit USD$1270/oz, it to came to within ~6% of the global average all in sustaining cost of production. Read of it what you will, but imo these stats are quite significant!
SLR Price at posting:
68.0¢ Sentiment: None Disclosure: Held