Dear Friends,

We have spoken many times about the goof of the age, which was the assumption of short of gold derivatives by gold producers. I believe it is just one more piece of evidence that those who mine gold know the least about what they produce.

The spin was wonderful when the losses were taken. It was reported as a forward thinking action that functioned as a Stop Loss. Unfortunately for these producers it happened to be on average about a $650 dollar loss.

The reality is that short of gold derivatives have not gone away. If you want to finance an underground mine today you will still have to do the derivative even if it is in the loan indenture and therefore at best as a footnote on the books. No major will undertake any new projects here as they do not trust the price of gold at $1224 any more than they did at $248.

The above two points further the reasoning that very little new production will be coming online from the major’s exploration activities. Instead you will see the industry as a whole consolidate.

The next major goof will occur from the same fact trail. The gold miners, having lost the art of hedging from grades and production, will sell every ounce they can produce or acquire as fast as they can produce it from whatever grade they are presently working.

The idea of stockpiling all produced gold in excess of their cost of operation and timing their sales to the gold price reaching my Angels or Alf/Martin’s numbers has never struck the majors. Even selling along any percentage angle of an uptrend line accent equal to that which occurred between $1000 and $1224.10 (the quite temporary high point) would be a start.

Think how attractive a major producer would be if they had any understanding of markets.

Regards,
Jim