The yellow metal has seen some correction in price off late in US dollar terms. After reaching a high of US$1,790 at the start of October, it is hovering close to US$1,700 now. So, is this a sign that prices have reached unsustainable levels for a long term correction to seek in? Well, not really.

If one looks at the bottom line of gold mining companies, one would be surprised to know that they make only US$200 per ounce, as acceptable profits. This is when the price of gold is US$1700 per ounce. Rest of the money goes towards the operating cost. Thus, the belief that the current gold prices are in a bubble territory is not true. The cost of extracting gold is increasing which is increasing the prices. Also, it is interesting to note that the production of gold has remained flat or declined since 2000. When similar thing happened in 1970s the price of gold shot up considerably. Thus, with deficiency in supply, prices are bound to remain firm. Another interesting aspect is that even when the production increased steadily from 1981 to 2000, prices were more or less firm. This speaks about the everlasting demand for gold. So, the current correction is not worth fearing it seems.