Remember those headlines predicting gold’s price reaching $2,500, $3000 and, even, $10,000 per ounce in the coming months?
Well, today with gold priced down 27% (off its $1,920.30 peak in September 2011), and tentatively hovering around $1,400, those investment headlines seem to have missed the mark. In fact those headlines have turned downright negative, predicting that gold will continue to decline, reaching $1,200, $1,000 and, even $800 per ounce in the coming future.
Even if you're not a gold investor yourself, the commodity's recent price decline does have an impact on our economy and our lives. To what degree? That depends on your relationship to it.
A lot of Canadians depend on the gold mining industry for their jobs, so for those people the decline in the price of gold will have a very real and meaningful impact on their lives, as their jobs and life-savings may depend on it.
Many Canadians don't realize just how much money the mining industry contributes to our economy. Take a look at just some of these mining industry numbers and facts:
So, with numbers like that, when gold prices fall, the hurting starts right at the mine level.
For example, let’s say it costs a mining company $1,300 to produce one ounce of gold and they can sell it for $1,920.30. At those prices they can make a nice healthy profit of $620.30 or 47.7%. Healthy profits can be used to buy new gold properties, develop new gold mines, buy new equipment/machinery, pay employee salaries, pay shareholder dividends and hopefully support higher share prices - all good things for our economy!
Remember: Investors demand a company’s management constantly grow sales, profits and dividends. Often when management is unable to grow its profits through a growth in sales, investors will demand management achieve the profit goal by cutting expenses (often jobs). These tough business decisions aren't limited to the mining industry - the ripple effect extends to companies that provide goods and services to the gold industry... And so the impact of declining gold prices begins on the Canadian economy.
When it comes to investing and gold, you are either a "believer" ( also referred to as a gold-bug) or a "non-believer". Gold-bugs believe the fundamentals for owning gold (money printing, risk of inflation, financial and political turmoil, etc.) have not changed and continue to support the gold price moving higher. Non-believers tend to believe the price decline is due to improving world economies, greater financial stability created by central bank actions and an overall improvement in the past 18 months.
Gold fun fact: It may now be more profitable to mine our old cellphones than it is to dig and process ore from a gold mine. It’s estimated that recycling a ton of iPhones (8,101 iPhone 5s) will recover 9.72 ounces of gold or $13,608.00. Compare this figure to processing a ton of gold ore from the famous Yanacocha Mine in Peru that recovers 0.03 ounces of gold or $42.00 for every ton of gold ore.
While falling gold prices hurts all of us in the big picture, it does have its advantages, however, closer to home.
Have an anniversary or special birthday coming up? Well, you’ll be happy to know that that special gold necklace and set of earrings just got cheaper – 27% cheaper over the past 18 months. If you haven’t seen the reductions yet near you, just hang on. While the jewellers might be a little slow in sharing the price reductions with you as they work off their older (more expensive) gold jewelry, the savings will eventually make their way to your purchase.
Another place we’ll all see some savings as consumers thanks to falling gold prices is in the world of electronics as one of the biggest uses for gold is in the manufacturing of cell phones, flat-screen televisions, etc. So in theory, a decline in the price of gold should make electronics cheaper. Or if the manufacturer decides to keep the savings for themselves, the gold price decline should help them to generate more profits.
And finally, have you been postponing that gold crown your dentist has been recommending? Well, you might want to go ahead now because it’s on sale – 27% off the old price.
Gold fun fact #2: According to the World Gold Council’s 2012 gold demand statistics, out of a total of 4,405 tons of gold used in 2012, here’s how it gets used: