pog is out of sync with costs

The POG is out of sync with costs to mine it.



It costs an average mine with no debt $800/oz to produce gold.
If you start off with average cash costs of $600/oz then add Depreciation and Amortisation, Admin costs, exploration costs , royalties, taxes etc,,that's another $200/oz - you end us with $800/oz in total costs.

It costs an average mine with debt $900/oz to produce gold.

That's the average miner in 2008 !

You can add $100/oz to the costs each year - consumables acids, fuel, running diesel generators, explosives, labour all continually rising every year.
Acids have risen 400% over the last 12 months !
Fuel by 100% etc..

So in 2009 an average miner with debt - and most do run debt - would need to make $1000/oz just to break even.
That's an average miner!!

So the 25% that are higher cost and just barely surviving now will go under if gold stays at the current price in 2009.

As an example there was a case of a miner (was it Redback? I cant remember)- anyway an open pit miner whose electricity charges doubled and that made the costs rise by $50/oz as a result.

costs are a killer and the gold miners will be decimated and the global supply dry up unless the they get the fair price.

the fair price to my mind is $1000/oz in 2008 .. $1,100/oz in 2009, $1200/oz in 2009 etc..

So the market may think it can decide what the POG should be - but there are fundamental costs that decide if the gold will be produced at that notional market price.

And if the supply dries up I think the market will realise what the main determinant of the POG is - COSTS!