"We are at a watershed where the message from shareholders is very loud and clear: `We do not like what you do,'" said Markus Bachmann, Johannesburg-based manager of the Craton Capital Precious Metal Fund. "The costs are too high. The returns are not good enough."


To be sure, producers with good management and operations may be set to benefit from slowing cost inflation and rising gold prices, investors say. Gold may advance to $1,850 an ounce next year, according to the median forecast of 24 analysts, while cost inflation of 19 percent in the past 12 months may ease as the mining industry curtails expansion in response to faltering Chinese demand.

"There are signs that the cost inflation is contained, which will help the companies," said Bachmann. "By and large we will see a healthier industry next year.

To some extent we feel for these mining companies. Cost inflation is not really their fault -- it's the fault of central bankers and their money printing. In fact, one could argue that the failure of gold mining companies' operating margins is yet another piece of evidence that gold is massively under-priced! In other words, gold's price is only just keeping up with general cost inflation. That means the real "price spike" is ahead of us.

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