an interesting time

I must admit that the drop in the POG in the last month along with the drop in PXG's share price have been quite disconcerting and unexpected by myself.

I spent some time again thinking through reasons on whether I should cut my losses with PXG or ride out the storm. I have decided to stick with the stock and here are some of the reasons. I would be interested to hear the thoughts of others

PXG specific

As of end of 1st quarter 2013, we have 21 mill cash in the bank. If the POG crashes dramatically, drilling/spending can be halted until things recover and we'll not be victims of a low ball takeover or be diluted to oblivion with cap raisings

Jon Price is one of the best MDs of a micro cap I've seen. He has not made a significant mistake since starting this company.

PXG is a small cap stock with retail investors and board holding majority of the shares. A significant drop in share price or POG should not necessarily force a firesale of the share price (e.g. unlike funds which are often forced to sell once a company goes below a certain market cap regardless of share price)


Price of Gold specific

Practically all of the mainstream media is saying that the Gold bull is over and gold will crash. It has been reported that Soros has dropped his stake in SPDR gold ETFs by 12% in the last quarter (9-10 million dollars). However, the MSM forgot to mention that in the same quarter, Soros purchased over $25 million dollars worth of call options on the GDXJ Junior Gold Miners index - which is leveraged and higher risk than ETFs.

Central banks have been buying physical gold since 2011 and have purchased more in the last year than anytime since 1964. 3 billion dollars worth in the first 2 months of this year alone. Why would the people who are supposedly the most well informed and telling others not to buy gold, accumulating gold like mad?

The total all-in cost of producing gold internationally is approximately $1100-1150 USD/ounce. Supply will drop significantly (and hence price will increase) if POG gets down to that level so calls of POG below $1100 make little sense.

The rising USD provides Australian goldies with a buffer as the POG in AUD becomes higher as the AUD drops in value.

80% of gold produced is bought by consumers for jewellery with majority bought by the chinese and indians. Their population and economies are growing and I do not see a drop in demand. Look at what happened with the last dip in April - a large surge in demand.

I don't expect POG to go to the moon like some other goldbugs but I see quite limited downside at this level, particularly in PXG which does not need to raise funds. There's a lot of potential upside in gold, particularly with the unlimited quantative easing/money printing and inevitable inflation. In my opinion, it's important to look at what the major players are doing, not what they are saying.

Good luck all :)