Actually there is another scenario here, but it deals with the market in general.

The commodity price of gold (and oil as well) has been totally disconnected from the share prices of the gold mining companies.

I just did a follow up on some of the precious metal mutual funds that I used to own in the past and the disconnection is glaring. Gold has gone from about $600 per oz. to around $800 YTD - an increase of roughly 33.3%. Here is the performance of those gold mutual funds to 12/01/2007 YTD:

BMO + 3.57% (ARU top holding 8.8%) strictly juniors

CIBC + 4.23% (G top holding 6.2%) mosts juniors and small caps

RBC +7.10% (ARU 3rd top holding 5.0%) mostly juniors

TD + 1.79% (G 14.96% & ABX 13.6% top holdings) mostly majors

Looks like the theory of rising extract costs on gold have really taken hold with the investors. The mutual funds with the most producing majors are really penalized and being held back from delivering meaningful share price gains.

You can check oil prices and oil company stock prices and find the exact same thing. Could that be just the investors are telling us, subconsciously anyway, that these high commodity prices are unrealistic and cannot hold in the long run?

Love to hear all your comments.