Small Cap Investor Blog

Mr therealist,

I suggest you take a look at some of these charts to see the disconnect between the POG and inflation.

http://pragcap.com/do-gold-prices-correlate-with-u-s-inflation

So no, I absolutely do not agree with your statement, and other columnists/analysts, that costs are a real concern. If you look at the wide spread of their gross margins, the POG is increasingly outpacing the cash costs per ounce gold right up to year end 2011, by the chart below. There would have to be enormous inflation and other cash costs over a longer period of time to destroy this correlation, and in the reverse, a huge price rise in the POG would speed up the widening gap between costs and profit margin. Now, if the POG were to drop drastically, it would really hamper any companies ability to survive,and if these big companies can,t survive, it adds dearly to a recession and downward spiral that the governments can,t allow, because they got to keep whatever is left of this current financial system intact.And the only way to do that, is continue status quo by letting the POG go up by demand prospects and survive as the only means to back all world currencies. So, we have 2 choices, let gold go up and save the world, or let it implode and cause armegeddon erupting from majority middle and increasing lower classes.

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As for salaries and compensation payed to executives, they don,t need that much to live on.Their life styles can be cut back dramatically and they will still survive, look at how little the lower class lives on a year and still survives and live. 120 lower class families can live off of what just 1 of these excecutives make a year. In making a decision if a company is going to survive and help stave off a huge recession, there should be a feeling of responsibilty by these execs, to do the right thing, if faced with it.Greed is whats wrong with this world, its not right for a handful to be living high on the hog, while so many starve, where is the compassion to the fellow man, where is the civility that is supposed to exist in todays civil world?

Tricks are played, and writedowns can be used as such for political lobbying,its all part of the game.And sometimes things are taken for face value by many and they fail to see the whole picture. Everything affects everything, if you look at things on a one year scale, you are not gonna get the full picture, plain and simple.

You are missing many aspects of contributors to POG increases. There are many new variables entering the equation for the POG, and historical fundamentals may only be the base from which a new understanding can be developed. I don,t believe the impact of China encouraging its citizens to buy physical gold is appreciated yet. You have an economy still expanding with a constant money supply going to Chinas huge growing middle class which are a wise people. The central banks,IMF and countries governments will be the biggest determining factors on how far the POG will rise, and how quick.

IMO

I have read many articles and posts about gold price manipulation, and then trying to translate this to gold stock prices. I am not in this camp AT ALL. Fact is gold is at $1,600 – a very lofty price indeed – just a few years ago this seemed so far away. What is hurting gold companies is not the price manipulation (whether or not it is true and to what extent) it is costs – plain and simple. Companies are having trouble keeping capital and operating costs at reasonable levels. Thus, many majors are looking internally to reduce costs prior to buying any new projects. This is hurting exploration companies – for one, the cost structure of current operations is proving that many highly touted exploration deposits are uneconomic. I look at a company like Moneta Porcupine – 3 million ounces, Ontario, higher grade than anything SLI pulled out of the ground from drilling, and it is languishing. Why? The market deems that capital cost of starting an operation and operating costs of sustaining an operation is to high to justify – probably needs to double in size as a deposit to garner more attention, and a little speculative hype in gold and juniors.

The glory days of the mid-2000s, and the brief period in 2010-2011 of speculative hype are over – too much pain in the markets. There will be the odd company that hits a crazy hole every now and then that spikes the price, but that is the thing an exploration company lives and dies by the drill bit, in the context of the broader equity and gold market.

My thesis – gold price is not the problem at all, but cost structure of industry….hurts everyone.

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Kind Regards,

The AGORACOM Team