$917 Cdn gold price - Reflation occuring

It's interesting, gold stocks have been punished mercilessly, yet the Canadian gold price is probably higher now than at points earlier in the year. With the Cdn $ previously trading at par, a $900 US gold price only gave us $900 Cdn per oz. Now we still get $917 Cdn even though the US gold price has fallen to $742.30 US, due to the exchange rate now being .8095. In addition, some key components at the cash cost per oz level have moved in our favour:

1) 9 - 10% decrease in the Peruvian currency
2) much lower cost of consumables
3) much lower fuel prices

It's just unfortunate that share prices of gold miners haven't held up better. Clearly, it's an extemely emotional market evironment - all across the broard.

I think the market from time to time is catching on that reflation is happening. I think they are starting to realize that the only way that governments are going to get the world out of this mess is to inject massive amounts of paper currency into the system. The only thing they care about right now is to avoid major deflation, which could lead to a severe depression. The governments will never let another great depression happen again. The governments fear deflation much more than they fear inflation. The window is very limited to subdue deflationary pressures, before it becomes out of control - it's a ticking time bomb. The governments will throw everything, including the kitchen sink, to inflate the world out of this situation. As we know, this will eventually lead to massive inflation, and potentially even hyperinflation. However, governments can't worry about inflation for now. They need to save the world first, and injecting massive paper liquidity is the only way to accomplish this. It will need to be a global effort, which we have already seen the early stages of: US ($3.5T, and counting), China ($600B), Russia (billions), France, UK, Canada, Australia, etc. Believe it or not, what we have seen thus far is just the first phase. The governments are saying they will do whatever it takes.

Today's gold rally is the first realization by the market of the above I just explained. This rally might not necessarily be sustainable, but we should see a lot more of these rallies over time, as the general public and money managers realize and accept the inevitable. Likely, today's rally was triggered from statements made by Bernanke.

Here is an article:

Gold, Silver Rally on Inflation Expectations; Platinum Advances

By Pham-Duy Nguyen

Nov. 14 (Bloomberg) -- Gold rose the most in eight weeks on speculation that central banks will add more liquidity to unfreeze credit markets, spurring inflation and boosting the appeal of the precious metal. Silver and platinum also gained.

Federal Reserve Chairman Ben S. Bernanke said the U.S. and other countries are ready to take more action to boost lending. The dollar declined against a basket of six major currencies after dropping 0.6 percent yesterday. More liquidity will devalue currencies and stoke inflation, said Frank McGhee, the head dealer of Integrated Brokerage Services LLC in Chicago.

``Basically, the government needs and wants an inflationary spurt to turn this economy around,'' McGhee said. ``Gold is probably $100 to $150 too cheap, based on the amount of liquidity that's already been pumped into the system.''