gold producers being priced for 1200 gold

Gold stocks generally are off very heavily this month. It looks to me like the market is pricing the sector as if US$1200 is here to stay - for at least a while at least. If it is then I can understand why so many producers are still being sold off so relentlessly.

Latest estimates are that global AISC is currently running around US$1200, down from around $1300 6-12 months ago. Most likely the AISC is down for two main reasons; drastic cuts to some areas like salaries (SLR one Aussie example), personnel cuts (MML recently had drastic cuts) and heavy reduction in exploration expenditure (right across the sector). The other contributing factor would be high grading of existing mines and the closing of the highest cost mines, some of which were running above $1500/oz AISC (SLR's Murchison).

Even with the global average AISC now reportedly around $US1200, we know there are mines running at around or below $1000/oz AISC. For $1200 to be the average, there must be mines currently running well above $1200/oz and there would be many still running at above $1300/oz. My point is that if $1200 is the global average then at least half of the worlds current production must be now running at negative all in cash flow. That is before we even allow for cash going into capitalised development of mines or ongoing capex expenditure on plant, both of which require cash but both of which are not included in many reported AISC numbers. Half the world production is a very large amount of gold to take away from the supply side if those mines begin to shut down on a large scale because they are drawing on cash.

Despite investor/trader selling of gold because they are told gold must go down as a result of the US economy "doing well", I can't see how the POG can stay at or below $1200 for any extended period. Short term of course anything can happen but long term it makes no sense. Another thing that makes no sense is that the POG has to go down because the US economy is doing well. Wasn't the entire global economy roaring ahead between 2001 and 2008 and weren't interest rates much higher over that same period than they are likely to be over the next 5 years (just look at how low the long bond rates are over 5-30 years)? Didn't the POG move from $256 up to $1000 over that same period of extraordinary global economic growth and higher interest rates? Didn't the same thing happen during the 1970-80 gold bull run (strong growth and record high interest rates)? People have very short memories and the media is full of @$it, just plain stupid or playing along with some propaganda campaign against gold.