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The price of gold and gold miners has been frustratingly stagnant given the underlying fundamentals, observes Lawrence Williams in The Gold Report.

The gold market has been denying all logic. Virtually everything that is happening in the global economy suggests the price should be rising-and probably rising fast-yet it has been unable to move out of a trading range of between around $1,680 and 1,750/ounce. And every time it nears the top of this range, it gets knocked back again.

It certainly has made some weak holders pull out of the gold market altogether, while believers are beginning to find the call from gold experts that they should use the dips as buying opportunities frustrating to say the least-and they may fall out of the market too.

It's actually interesting to look at the chart of the gold price running back ten years or so:

Click to Enlarge

There is seemingly a strong similarity between the pattern to the setback in the gold price in late 2008 to that of today (including the percentage of the pullback), although today's is so far a little more prolonged-and look what happened in between. There was also a similar pullback discernible from the above chart back in 2006.

The more circumspect gold bulls all predict that there will be setbacks in a continuing upward path, typical of an ongoing bull market. Those who say the gold price chart suggests a bubble waiting to burst don't seem to know much about bubbles. The only way the gold price could burst downward in a bubble-like phenomenon is if all the world's Central Banks got together and decided to demonetize gold and sell all their holdings, creating a glut of immeasurable proportions.

It is not in the banks' interests to do so, given that gold constitutes such a huge part of the foreign exchange holdings of a number of nations which would have to be key to such a decision. Gold is actually too far ingrained into the financial system for this to happen.

Failing that, the ever-rising cost of producing an ounce of mined gold mean that the price downside is pretty limited in any case. It is, on average, probably around $1,100-plus an ounce (ignore a mining company's cash cost figures-they are mostly just paper figures taking little or no account of the capital costs-initial and ongoing-involved in a mine's development and operation).

This means that many producers are probably only marginally profitable even at current price levels. Take their production off the market and the supply-demand balance changes dramatically...and prices would quickly recover.