GBN.V Inverse Correlation /w $USB

GBN.V has become even more strongly inversely correlated with the $USB price. There is no apparent inverse correlation with Canadian long term bonds, as long term treasury bonds in Canada are yielding ~2.5%.

But with the bull market in treasuries and the Bre-X scandal in 1997, you have a derivatives balance sheet expansion which co-incides with quite literally no advance whatsoever in the stock price since that time, but which saw the advance of the $USB price. A delta hedging strategy is in place, which comprises GBN.V shares, as it falls under the rubrique: "most likely to fail" and thus falls under the assumptions of the Black-Scholes options pricing model.

Further, since more deregulation occurred in the banking sector in late 2005 after ABCP, and the abolishment of the no-down-tick rule in 2011, this has resulted in the enrichment of derivatives positions at the expense of GBN.V shareholders. A sectoral snapshot of the gold mining industry shows that gold miners have been shooting themselves in the foot throughout this time, in their anxiety to succeed, when it merely requires that the gold price maintain an average above ~$1800/oz.

The laws favour only delta hedging derivatives positions, not actual gold producers that contribute to the economy. They also have the Canadian government bailing out the banks with hundreds of billions of dollars whenever these derivatives positions go wrong, or they can trade their bad assets for treasuries with the Central Bank. This precludes that GBN.V can provide opportunity in the share price advance.

Since GBN.V cannot provide any opportunity for shareholders in the share price advance, GBN.V as a company is now under the strongest obligation to its shareholders, as if it were by contractual obligation, to provide a dividend. With dividends, share prices are determined by forward earnings, not trailing earnings, thus the share price will likely track the rise of the gold price, but not before. Trailing earnings will yield a share price of 30¢, forward earnings will yield a share price of ~$2.10.

imo, its completely absurd and preposterous to suggest that a company with $74m. in revenue is not without overwhelming free cash flow.

supersize: http://www.flickr.com/photos/11747277@N07/7145263997/sizes/l/in/photostream/

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-F6