http://www.zerohedge.com/news/2013-12-15/perfect-storm-coming-gold"At a price of $1,250, gold mining companies can no longer make a profit. Recent studies show their all in cash cost anywhere from $1,400 to as high as $1,700. Liquid fuels, human energy, and new exploration are costly in the mining process, so it is unlikely these costs can be cut to accommodate the low gold price."
Goldbugs' hype
I have another, more reliable
source. In 2012 marginal costs of gold were equal to $1,104 while the average cost of production was at 673$ per troy ounce. In the third quarter of 2013 average cost was $654, highest in South Africa ($928 per ounce), and lowest in Indonesia ($414 per ounce), Russia ($515 per ounce) and China ($549 per ounce)...
This is something people don't really understand and it is one way that gold (or any commodity) naturally balances supply and demand. In the "will bitcoin always be a bubble thread" it got me thinking that an altcoin could attempt to replicate this behavior by allowing miners to mine more coins at a higher cost to simulate the effect of marginal production.
To simplify what he is saying. Gold doesn't have one production cost. It varies considerably from one mine to another based on yield, complexity, labor costs, etc.
As an example lets say There are mines with a production cost of $300 per ounce, some with $900 per ounce, some with $1200 per ounce and some which aren't being used with an estimated production of $2,000 an ounce.
Now the $300 mine never stops mining. That mine runs 24/7/365 and no matter what the price of gold does they keep mining because it has remained above their cost of production for years. Sometimes they make a larger profit sometimes they make a smaller profit but they always keep mining.
The $900 mine has been in pretty solid production for some time now. It is less profitable per ounce than the $300 mine and it is a little more risky (as prices falling below $900 is more likely than below $300) but it probably hasn't shut down in the past couple years.
The $1200 mine is hit or miss. Sometimes it mines and sells off, sometimes it mines and holds onto the gold looking for better prices, and sometimes it just shuts down the mine because it doesn't make any sense to mine an ounce of gold for $1,200 and then sell it for $1,000.
The $2,000 mine has never operated other than some research drilling. It still has some value on the books because someday the price of gold may rise above $2,000 or improved technology may drive the production cost down but it remains idle.
So how does this help to stabilize price? As the price rises more mines go into production and as the price falls more mines go into an idle status. Thus when prices are spiking increased production absorbs some of that increased demand and slows the rise in price, and when it slumps the shrinking supply offsets the shrinking demand and slows the price decline.
I haven't really thought it all the way through but I am thinking if there was some method (alt-coin Bitcoin will never be radically changed) that allowed a miner to mine extra coins at higher cost (electricity) then they would when the price spikes and that additional supply would act as an offset.
