What is the incentive price of one ounce of gold?
News Arnulf Hinkel, financial journalist – 20.07.2018
The purchase or sale price of gold is determined by the supply-demand ratio. Geopolitical events, crises or the fear of those, the current key interest rates worldwide and movements on the stock and bond markets can have an impact on gold prices. However, there is another measure to price one ounce of gold: the cost of exploring, mining and producing bullions or gold coins.
Cost of gold production keeps rising
With the massive expansion of gold mining in recent decades, the development of new production sites has become significantly more expensive. According to a study by precious metal consulting company Metals Focus, the cost of developing new gold deposits and constructing new production sites has increased by an average of almost 10 per cent annually over the last 15 years.
New gold supply not profitable at less than $1,500 per ounce
Metals Focus determined the minimum price of an ounce of gold for mining companies to have sufficient incentive to explore for and exploit new gold deposits. The price of one ounce of gold from newly discovered deposits is composed as follows: according to a study by MinEx Consulting, the discovery cost for gold deposits through exploration accounts for an average of $75 . In addition, the capital cost to construct and build a mine is $200 per ounce. By far the highest costs are those for the operation and maintenance of a gold mine, which total around $1,150, according to Metal Focus’s 2017 GFMS report. Finally, a return on investment of 15 per cent must be added to ensure the capital procurement. If the gold deposits are located in regions that are less stable politically, the return on investment would have to be higher. Hence, the incentive price of one ounce of gold amounts to around $1,500.