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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Perspective who wrote (87580)	10/11/2007 4:02:27 PM
From: Horgad	Read Replies (1) \| Respond to of 110194

For the most part the RAND gold price has been doing just fine. It is not making new highs at the moment, but it is right near the highs. However the inflation in the SA miners expenses just seems to be keeping one step ahead of the increases in the gold price. Part of it I'm sure has to do with having to mine more expensive reserves, but a lot of it is just general inflation in energy costs and wages. As for the non SA miners, I wonder how many them are actually benefiting from the rising gold price and inflation. Could it be that a lot of this move is just a knee jerk reaction to the POG rise and not based on earnings fundamentals? I know that I for one have been suckered before with earnings potentials based on POG that don't factor in inflation related increases in expenses. As such, I've thought for a while that maybe a better way to go might be to hold all physical gold and not buy the miners unless there is a stock market crash followed by a deflationary environment. But for now I'm trying to learn to be quicker trading in and out of the gold miners and have been gradually shifting holdings away from the SA miners.

To: Perspective who wrote (87580)	10/12/2007 11:09:00 AM
From: GraceZ	Read Replies (1) \| Respond to of 110194

Wow, that's kinda scary. I hadn't looked back at my old $hui positions, but they basically haven't participated in the rally at all: AU HMY GFI RANGY. Only ASA doing anything at all, and it's still within 10% of where I sold it over a year ago. They get their income in dollars and pay expenses in local currency. You made the connection in this message but failed to see its effects on gold producers: I remain short stocks that have dollar-denominated revenues and non-dollar expenses, hedged with stocks that have non-dollar revenues and dollar-based expenses. Short trucking, retail, restaurants, real estate, and hedged with Dow30 and QQQQ. Add foreign oil producers to that heap. You buy producers in the beginning of a commodities boom when they can enjoy the benefits of the price without suffering the rise in expenses. You switch to the physical once the trend really gets going. The inflationary push that drives up the price of the commodity also raises the expenses of the producer. This isn't totally monetary inflation at work. When the price of the commodity rises producers tend to put into play their less efficient marginal production and this has a squeeze effect on their margins. They are producing more than they ever did and it continually costs them more to do it. Look at housing for a recent example. The cycle only continues until price breaks down, which it does when those attempting to short the rise are finally busted and all you have is speculative long buying. Price break downs in commodities are usually breathtakingly steep because of this, longs attempt to preserve profits, pull their bids underneath and the shorts are already gone. On the way down, producers continually take off the marginal capacity so their efficiency and margins increase, they do this until so much capacity is removed, that supply is reduced enough to stop price from falling. As price rises out of the bust, the cycle starts all over again. This cycle is as old as commodities themselves.