Gold cost of production supports price as physical buying accelerates

UNITED STATES November 11 2014 3:35 PM

 

NEW YORK (Scrap Register): Despite new record high US equity prices and the stronger US dollar, gold was the best performing precious metal last week, declining only 0.8% compared to the 4.8% decline in silver and the 2.4% and 2.7% respective declines in platinum and palladium, said ETF Securities.

 

One of the most obvious and instantaneous signs of strong physical demand, gold forward rates (GOFO) ended the week in negative territory out to three months. 

 

Gold withdrawals from the Shanghai Gold Exchange (SGE) have accelerated to an annual pace near 2,700 tons, which is close to total global mine supply. 

 

During the month of October, just over 227 tons were withdrawn from the SGE, which is almost double that of October 2013. Meanwhile, Hong Kong gold imports for September were the highest in 5-months. 

 

In India, the Business Times of Mumbai reported heavy buying on the back of recent price declines. With the marginal cost of production for gold near US$1,100oz. and the all-in cost near US$1,200/oz., bargain hunting appears to be driving physical buying. Although gold ETFs continued to see outflows, inflows are beginning in silver, platinum and palladium ETFs. 

 

All the precious metals are currently near or below their marginal costs of production, which if sustained, should curtail mining activity, tightening supply and supporting prices.