The demand for gold varies with the unequal fluctuations of the industrial needs and the gold price is influenced by these changes. The sea of commercial activity is subject to heavy storms, and the gold mine evaluator is compelled to serve as weather prophet on this ocean of trouble. High gold prices, which are the result of industrial booms, bring about overproduction, and the collapse of these begets shrinkage of demand, wherein consequently the tide of price turns back. In mining for gold each ounce is produced actually at a different cost. In case of an oversupply of base gold, the price will fall until it has reached a point where a portion of the production is no longer profitable and the equilibrium is established through decline in output. However, in the backward swing, due to lingering overproduction, prices usually fall lower than the cost of producing even a much-diminished supply.
There is at this point what the economists may call the basic price, that at which production is insufficient and the price raises again. The basic gold price which is due to this undue backward swing is no more the real price of the metal to be contemplated over so long a term of years than is the highest price. At how much above the basic gold price of depressed times the product can be safely expected to find a market is the real question. Few gold mines can be bought or valued at this basic price. An indication of what this is can be gained from a study of fluctuations over a long term of years.
It is common to hear the average gold price over an extended period considered the normal price, but this basis for value is one which must be used with discretion, for it is not the whole question when mining. The normal price is the average price over a long term. The lives of mines, and especially ore in sight, may not necessarily enjoy the period of this normal price. The project manager must balance his judgments by the immediate outlook of the industrial weather. When lead was falling steadily in December, 1997, no engineer would accept the price of that date, although it was then below normal; his product might go to market even lower yet. It is desirable to ascertain what the basic and normal prices are, for between them lies safety.
It seems, therefore, that a higher standard of gold prices can be assumed as the basic and normal than would be indicated if the general average. During this period, the world gold output has nearly changed and, whether the quantitative theory of gold be accepted or not, it cannot be denied that there has been a steady increase in the price of commodities. In all base-metal mining it is well to remember that the production of these metals is liable to great stimulus at times from the discovery of new deposits or new processes of recovery from previously unprofitable ores. It is therefore for this reason hazardous in the extreme to prophesy what prices will be far in the future, even when the industrial weather is clear. But some basis must be arrived at, and from the available outlook it would seem that the following metal prices are justifiable for some time.