Today, Peter Schiff appeared on CNBC to answer the question, “Should gold have ever been $1,900 an ounce in the first place?” Peter defends his long-term stance on gold and points out that the falling price of gold will soon have serious effects on the mining industry.
“We know at $1,200 [an ounce], the majority of gold mines can’t even mine [gold] profitably. So gold is now trading for less than the cost of producing it, and of course in order to produce it you have to own a gold mine, which is very hard to do. So the price of gold can’t stay down here for a long period of time, because then the gold companies will shut down and there will be no supply.”
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How high is the operational cost of the least fertile gold mines in operation today?
The assumption that there is no CPI inflation is absolute nonsense. According to the Economist, in 2008 a Big Mac in the US was $3,57 and in 2013 according to the same source it was $4,37.
If the gold price would fall down to the operational cost of the least fertile gold mines in operation today and mines were actually closed down that would be excellent news for the gold price.
Why?
Because after having fallen that low, the true US dollar inflation rate would have to be 0% just in order to avoid any further increase in the gold price. The Big Mac price in the US from 2008 until now proves how far away we are from a 0% inflation environment.
The worst thing that can happen now is a fast increase in the purchasing power of gold, that is a gold price increasing faster than the true US inflation rate since that would pave the way for future downward corrections.
If the gold price is going to go down approximately to the operational cost of the least fertile gold mines now in operation and thereafter stay att that level, the gold price will thereafter most precisely mirror the true US dollar inflation rate and gold would become the most rock-secure asset one could possibly imagine.
Actually the worst thing that happen to the gold price is that the US dollar gold price increases more than justified by US dollar inflation because if so downward corrections will follow.