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Sean Boyd continues:

“There has been a great deal of discussion, mostly in Europe, about austerity, but it’s not a viable option.  It’s not an acceptable or palatable option to the people.  This means that we will see continued stimulus and money printing.  This will increase the supply of paper, which will ultimately be good for hard assets, particularly gold.

That’s what’s really happening.  The other major factor will be the buying coming out of central banks....

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“They (central banks) clearly have an appetite for gold, and the countries with the fastest growing paper reserves are the ones that under-own gold.  This is where we see a lot of the buying coming from and that’s where we’re very likely to continue to see strong demand for gold in the future.

We’ve just looked at 2012 as the second half of 2008, where gold fell dramatically and then started to build a base.  Gold then worked off of that base to head higher over time.  I think that is what the gold market is doing now.  As we move into next year, that’s when people will realize that holding paper has a lot of risk to it, especially given the stimulus that’s going to be required. 

This stimulus will continue in an effort to chase any type of growth or at least the conditions to create growth.  Whether the growth comes or not, those type of conditions are extremely positive for gold.  But I think the central bank buying is building this very nice base in gold and serving to cushion the downside.  Central banks watch the gold market quite closely, and I think that’s where you are going to see a lot of the support.

What central banks don’t want to do is diversify their reserves in such a way that causes huge price spikes in gold.  So central banks want to continually add to their positions, and that will not only be supportive, but help the gold market to move forward in a steady manner.”

Boyd also spoke about what it really costs to get an ounce of gold out of the ground: “Although ‘cash costs’ are in the $600 to $700 range, it costs an awful lot more than that to get an ounce of gold out of the ground. 

As the industry gets more realistic about ‘all-in’ costs to produce gold, that will give people a sense that at a lower gold price you are going to lose a lot of production.  The bottom line is the gold industry needs to come up with a standard for reporting the all-in cash costs to produce gold.

Gold mining is a difficult business.  If you think about it, we are essentially fighting nature as an industry, and a lot of the best deposits in the world were mined in the 80s and 90s.  At least the easier ones.  Now they are getting harder to find.  They are also getting harder to build.

The all-in cost structure would be much better for the industry because it would reflect how tough the business is.  The way the industry has changed its focus also means we will not see overall growth in gold production.  It suggests flat output going forward.  The important point here is that a much lower gold price would have the effect of shutting down key gold production in parts of the world.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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Eric King

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