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Gold mining, or for that matter any type of mining, has a built in cost of production. Those costs can be affected by management decisions or by rises in the cost of materials, labor or permitting but by and large those costs are built in by the time actual mining begins.

 

Suppose the market price of gold is $1,500 per troy ounce. Suppose the miner's cost of production for that delivered Troy ounce is $1,300. If the gold market drops to $1,400 then the miner's profits are cut in half. If the market price is reduced to $1,300 the miner is out of business no matter how rich his strike or how much time or money he has invested.

 

When gold prices are rising every dollar of rise in the price is 100% profit for the profitable mine. It looks real good when it's rising but investors get real nervous when it's dropping because they see each dollar lost as coming directly out of their profit. Add in hedging, junior investments and forward sales and it becomes obvious that even the smallest difference in the market price of gold is going to affect mining sentiment directly.

 

Considering each major country has gold reserves as part of their financial makeup and those countries have direct control over the interest rates, quantity of currency in circulation and commodities market regulation (including margins) it becomes clear that the price of gold and the resultant profitability of mining are largely controlled by political policy and considerations in each country with a hand in the pie.

 

In my opinion the market pricing of gold is almost strictly a political matter and has very little, if anything, to do with actual supply and demand by consumers and users. Betting on anything other than the general price trend for a political commodity is delusional in my experience. There is no "free market" in gold unless you consider a local market among gold producers and users. As anyone who trades in physical gold knows the COMEX paper market does not represent the market for physical gold in hand. Two different animals.

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Very well said, your conclusion is captivating.

 

Which animal to be?

 

    1. A corporate manipulator of paper power and influence,  one who will work a miner into an early grave?

    2. A miner who is always a miner, no matter which direction the winds blow.

 

Sorta reminds me of a Neil Young lyric,

     "I've been a miner for a heart of gold"

     "And I'm growin' old."

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Speaking of global politics and price manipulation of gold,what ever happened to Germany wanting their gold back from our government?How much would it cost us at $1800 ozt?How much at $1000 ozt?Not trying to start conspiracy theries,just food for thought.I'm sure the request for their gold back from our current administration and the time line in the decline of gold prices is purely coincedental.Besides,when would our government ever screw with the world's economy for their own gain?

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The worst part of the equation has not been addressed. Royality fees,export excise taxes/restrictions, and income taxes. These 3 insideous hurdles have killed off many a project. Never underestimate the Green radical eco machine as lawsuit after injunction after stay after vandalism now ruin ops left and right. Public meeting and hastles raise the anti mining hysteriacs to record levels as enviro nuts go all a blather like rabid dogs all wide eyed and blithering their mantras of no mining. Been to 100s a meetings and my my my the hysteria flies-John

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Environmentalism and it's expansion, a quick lesson for our future.

http://news.yahoo.com/chile-glacier-bill-pits-mines-against-water-supply-040842603.html

 

As well as an example of our past.

http://news.yahoo.com/california-governor-signs-bills-tackle-states-water-crisis-232032143.html

 

 

 

While we increase our population numbers and it's environmental costs,  we miners are treated like disposable cultural relics.

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