Financial Post - Peter Hodson

I really believe the gold mining shares rout has much more to do with the abolishment of the 'no-down-tick' rule in 2011. This made available an expansion of leverge possible in the derivatives market. Gold miners have become depreciated assets in a gold bull market.

Gold miners themselves made the problem worse by their own peculiarities, such as lying about the nature of their deposits, or grossly overestimating reserves, or aggressively taking out ore from what are really narrow vein deposits and subsequently were faced with ground conditions, or had to invest huge amounts of money into infrastructure or properties that did not provide anticipated returns.

Analysts have had to resort of a fundamentally myopic view on sentiment, rather than the hard facts about how mining stocks are being sold and the monies being traded into treasuries. But there is NO SHARE PRICE APPRECIATION MODEL IN A BEAR MARKET FOR EQUITIES.

http://business.financialpost.com/2012/05/18/whats-going-wrong-with-junior-golds/

By now, you can say that the liquidity bubble in gold stocks has been totally blown. And not once have I seen anywhere the inverse correlation with U.S. treasuries mentioned. Not once. The ones that survive will be the producers paying a dividend. Everything else gets wiped out.

The new, massive expansion of derivatives in the Canadian banking sector is not creating a situation where liquidity floats all boats, rather its creating a situation where liquidity is propping up commercial trading desks while the mining shares are trashed.

The Canadian banking sector is now BUYING CANADIAN STOCK EXCHANGES. Imagine the uproar if Goldman Sachs or JP Morgan tried to take ownership of U.S. stock exchanges. This should signal a new trend in reduced equity returns indefinitely while derivatives are expanded. You share price will be fixed according to the Black Scholes model.

Its not difficult to understand, just look at the following chart:

ow.ly/b19xF

Give Dr. Berni a listen several times if you have to:

http://youtu.be/sBCvQCS8UBI

The solution in all this of course, is to pay dividends.

-F6