Traditionally it made no sense for most people to hold gold if they could earn interest on funds deposited at the bank, since holding physical gold generated no income. The introduction of negative interest rates has increased demand for the yellow metal as expected (see my other articles).
But why choose gold, when there are so many other possibilities?
Aside from negative interest rate considerations, there are two primary advantages, which, in the current financial climate, make gold and gold-related investments very attractive-
The gradual increase in labor costs and other mining-related expenses have pushed the world average cost of producing an ounce of gold to roughly $1200 per ounce in 2015 according to GFMS, an organization that is credited with producing the most authoritative surveys of the gold and silver markets.
Therefore, although the gold price has rallied strongly this year, it is still barely above the cost of production.
It must be stressed that this figure represents the average of all gold produced, some gold mining operations have richer gold deposits, and therefore this helps lower the cost of production below $1200 per ounce, while other mines are producing gold above this figure due to various other factors.
Gold deposits are located in many countries throughout the world. Perhaps the most notable information regarding gold production is that during 1970, South Africa was responsible for producing roughly 66% of the world’s gold, but since that time, production in South Africa has declined and it now is ranked as the 6th largest gold producer in the world, according to the World Gold Council. Gold production is now more diversified, so no one organization or country dominates production, unlike OPEC in the oil industry.
Therefore because gold supply is diversified, there is no such a thing as a decision by a controlling group of producers to suddenly cut off or increase production similar to what OPEC does when it controls the oil supply. And since it can take up to a decade to bring a new gold mine to the production stage, it is difficult to suddenly increase supply.
These factors are combining to create a very bullish atmosphere for gold and gold-related investments.
The gold price continues to climb since the beginning of 2016 and gold-related investments, and for that matter prices of other precious metals, are following gold’s lead.
I will take a closer look at your choices to participate in this continuing precious metal bull market in upcoming articles.