What's Next

w  w  w  .  r  u  f  f  t  i  m  e  s  .  c  o  m 

A Floor in the Price of Gold?

We believe gold is wonderfully poised for future price increases. Even so, should it somehow fall, does gold have a floor, a price that would stubbornly resist further retreat? The answer is likely yes…and that support might come in the form of gold’s production dynamics.

Let’s set the stage. The thing to keep in mind here is that gold, unlike every currency ever known to man, cannot be inflated. You can’t turn a $20 Double Eagle into a hot air balloon. You can’t pump water into a gold bar. There’s only so much of the shining stuff in and above the ground.

And it’s this rarity that’s made the precious metal so valuable for over 2633 years of history.

It’s also this rarity that tends to fix the production cost of gold at roughly $750 an ounce. Here’s how Michael Rozeff from LewRockwell.com explains it.

“The costs of gold production vary among producers. I examined the production in ounces and the accounting costs of production for six large producers for the years 2005-2007. I obtained the total costs as reported on income statements and divided them by the production in ounces. I found that those costs were $570-$600 an ounce. Another source confirms my estimate with a number of $591 an ounce. That is not the total cost. The cost of the capital should be figured in. That raises costs to $700 to $750 an ounce, using a 10 percent cost of equity capital. The CFO of the largest gold producer (Barrick) estimates the cost of production at $700-$800 an ounce ‘easily.’ ‘To us that's the long-term break-even cost to the industry...below $700/oz to $800/oz long term, the industry doesn't make money.’ I conclude that an estimate of $750 an ounce for t! he total production cost of gold is not unreasonable.”

So if gold did descend below the magic $750 production cost, producers would, yes, tend to stop producing.

Production has been anemic as it is, even with gold topping $1,000 an ounce. In 2008, gold production followed a multi-year swoon, falling by 88 tonnes (a tonne equals 2,204 lbs) even while mining production costs rose 24 percent. If gold fell below $750, producers would likely just sit on their mines and let the world fight over the above-ground supply.

Now, granted, the actual industrial use of gold isn’t so great that it alone would ever drive the precious metal’s price to the moon. Still, if production halted at $750 gold, the law of supply and demand would kick in fairly quickly and, unless the economy were completely and convincingly fixed, there’d always be nations, investors and collectors eager to add more gold to their holdings.

***********************

WHAT TO DO ABOUT IT

Well…if you own gold, sit back, put your feet up, and pat yourself on the back (if you can reach back that far). You can feel good about your decision to add gold to your portfolio, come what may.

And if you don’t own gold, now’s certainly not too late. With so much going on, with today’s printing presses producing tomorrow’s inevitable inflation, the demand for gold is not likely to be heading south any time soon. If it did, as the above indicates, there may still be strong resistance at the $750 to $800 level, which could be a very comforting thing.

SECOND, for good gold “play by play,” consider a subscription to The Ruff Times. This e-letter gives you some of the sizzle…but the actual steak is in the newsletter.

***********************

This is One Time in Your Life When You Could
Really Use Some Financial Hand-Holding

At this writing, it looks like it’s all over Pontiac and our beloved GTO. They’re the latest casualties in the Washington/Detroit car wars. So what’s next in this historic recession/depression of ours?

And how will it impact you?

Maybe I can give you a “heads up” …help you safely maneuver through these tough times.

I’m Howard Ruff, and back in 1977 I authored what was to become history’s all-time best selling financial book, How to Prosper During the Coming Bad Years. It highlighted the economic problems we’ve wrestled with over the past 30 years…the same problems that have now evolved into the mess we’re in.

How to Prosper and The Ruff Times made thousands of people millions of dollars, and helped prepare them for the times ahead (in 2006, I updated and revised the book, re-naming it How to Prosper During the Coming Bad Years in the 21st Century)

I began The Ruff Times newsletter to keep middle-class Americans updated on what they could do, on a monthly basis, to survive and prosper in virtually every economic circumstance. It’s served more than 600,000 subscribers -- more than any financial-advisory newsletter in the world. For over three decades now, many of my subscribers have considered it a key ingredient to living a successful life.

This is much more than an investment newsletter. It deals with a broad spectrum of middle-class financial issues, is a commentary on where America and the world is heading, doesn’t shy away from discussing values, includes humor and an Investment Menu from which you can build your portfolio.

What’s more, I’m about to launch Ruff’s Weekly Commentary, an email I’ll send subscribers each week between issues, alerting them on all the late-breaking news we seen to be getting lately…and how to possibly capitalize on it.  

So if you’re feeling dazed and confused over the economy…if you’re wondering what happened and, more importantly, what will happen…if you’re worried about your family, your home, your job…and, above all, if you’d really, really love an experienced old pro to guide you, coach you, through this scary 2009, subscribe to The Ruff Times and Ruff’s Weekly Commentary today, as hundreds of thousands of people in your shoes have done.

It may be one of your best moves in 2009.