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[–] merton ago 

Can you explain how gold cannot go lower than its extraction cost? Oil is going well under its extraction cost.

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[–] acheron2012 ago 

Cannot is probably a poor term. Already extracted gold could of course go to the simple carry cost of moving the "worthless" metal around. The rub of course being that the metal is a valuable commodity and not at all worthless - unlike the fiat currency of countries attempting to skew this reality. But much like the housing bubble, and Internet bubble before it to quote Stein: "If something cannot go on forever, it will stop".

Gold miners don't want to close up shop and go work at Starbucks. Neither do oil extractors. And every company has both savings and credit. If the company ceases to be profitable it can continue for a while by spending savings and then using lines of credit. That's why by the time they reach bankruptcy court there isn't much left to pick over. But these are finite limits. Eventually they cannot continue to do this and their business will fail.

What you are seeing in oil is really more of a price war in a depressed economy; Saudi Arabia is very intent on driving higher priced competitors out of business, primarily western oil shale and sands. Thus they are using cash reserves to reestablish their market monopoly. Gold is under similar, pressure as countries attempt to reestablish the mindshare and savings monopoly of their paper money by flooding the market and discrediting the commodity as a safe haven for wealth. Both are time honored strategies that have worked many times throughout history.

The thing about these external forces is that they are incredibly powerful and have the resources to continue far longer than one would initially expect. But the laws of economics will not be denied forever, and they will exact a toll when the intervention stops and the price skyrockets back to free market levels. So gold is already a bargain. But it may go substantially lower in the short term. The absolute bottom is really unknowable to anyone, even the people driving the market. I would say it is a very dangerous short term investment. You could easily lose 20% or more of your money in the next 6 months. But in the longer term, even 10 years out, there probably isn't a better investment today anywhere in the world.

As an aside this is the trap the Federal Reserve fell into with below 0% real interest rates and QE. Once you establish these policies and they are figured into market valuations it becomes damn near impossible to turn it off without wrecking everything you were propping up.

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[–] merton ago 

I wasn't arguing gold was worthless. I was just arguing that the price of gold has no limit at how low its value can be.

However, I think a lot of people that say gold is a good investment miss an important point. Gold isn't an investment. It is a store of wealth. Why? Because it doesn't generate return. The only future value is through speculation; speculation that future price will be higher. A stock gives you a share of profit, a bond gives you an intesrest rates, a house gives you a rent, etc etc. Gold only gives you its future value, minus the cost of acquisition, safe keeping, and insurance.