I just looked it up, and the average "All In" cost to mine gold is $1,246 per ounce. Jpete is right. The value of gold is directly imbedded within the total cost required to mine, refine, and bring it to market. The price has no fantasy component. There is currently zero profit to be had in mining gold, meaning that it is clearly undervalued at present. If the typical company strives for margins (profit margins) ranging from 25% to 50%, then gold should be worth roughly 25% to 50% more than it is selling for right now on that basis alone.http://seekingalpha.com/article/1916941 ... heir-mines
And for silver the situation is as follows:
Average mines "All In" cost to mine, refine, etc... = ~$21.50
Current price = $19.00
A reasonable profit expectation of 25% would dictate a silver price of 1.25 x $21.50 = $26.88 per ounce
Gold is undervalued, and silver is clearly way undervalued.
Does this mean that gold and silver can't fall from here. Of course not. They can fall a bunch from here. 99% or more of the price action in gold and silver are in the trading of imaginary paper gold and paper silver. The prices of these metals can easily go much lower as a consequence, but that will cause the mines to begin to go out of business. They are at rock bottom right now, and I'm sure that some are teetering on the edge of closing their doors. Compound this with the banks refusing to loan money to the mines, and closing down is inevitable for many of them.