The Denver Gold Forum should be a happy, happy place, what with the precious metal on a multiyear run to levels above $1,700 (U.S.) per ounce.
But the forum is not a convention of hoarders of coins and bars; it's an investment conference for the companies who pull the stuff out of the ground.
And since gold-producer equities have badly lagged gold's gains over the past couple of years, there was less celebrating, and more head-scratching and soul-searching, in Denver this week.
Even Franco-Nevada Corp.'s Pierre Lassonde, known widely as an off-the-charts bull on the gold price, titled his talk "The best of times, the worst of times" – with gold prices the former, and gold equities the latter.
Why the disconnect? Well, as one company's director of investor relations explained to me, it wasn't so long ago that the typical buyers of the stocks were gold bugs who preferred production capability to profitability.
They believed the mineral itself would inevitably rise, taking care of profits for the companies mining the most gold.
In the past several years, however, investors who care about real return on capital and maybe some dividends began getting into the sector.
It's taken some time for the companies to adjust their message – and their results – for the new reality.
Mr. Lassonde has several explanations for equities' woes. Costs are rising as companies pursue lower-grade deposits. The return on a dollar invested in exploration has been on a multidecade decline, even with recent record gold prices. And there have been no major gold strikes to get investors excited.
And the "best" reason, he says, lies with the sell-side equity analysts covering the gold stocks. The analysts, he says, have been forecasting flat to declining near-term gold prices. By contrast, oil and gas analysts forecast rising commodity prices for the producers they cover, he says.
"Twenty to 25 per cent of our cost is energy, so both are saying we're going to have margin compression. Why would you want to own any stock of any company that has margin compression and the commodity price going down?" Mr. Lassonde's message to analysts: "Either you hire Nostradamus, or use the spot prices."
Nick Holland, the CEO of Gold Fields Ltd., put it another way. He urged his peers to "stop kidding ourselves" by reporting "cash costs" of mining gold that are $400 to $500 an ounce.
The "all-in" costs for the industry, which include initial capital expenses and ongoing maintenance, as well as administrative costs, are more like $1,300 per ounce, he said.
And, "if the analysts are correct [about falling gold prices ahead] we don't have an industry."
Of course, the Denver Gold Forum is not the best place to find people who believe gold has peaked. Mr. Lassonde rolled out his chart comparing gold prices to the Dow Jones Industrial Average; at the end of every commodity bull market, the ratio is one-to-one. The ratio has gone from 42-to-one in 2000 to eight-to-one today.
"If I'm right on one to one, the gold price has to go to $13,000 over the next 10 years," he said. "Are we going to see one-to-one? I don't know, but two-to-one I'd bet a lot of money on."
Don Coxe, a BMO Nesbitt Burns adviser who also spoke at the conference, predicts gold equities will actually rally first. His theory is that gold companies have been getting no credit for many of their deposits because those ore bodies were not economically feasible to mine at lower, historical gold prices. Once companies insert recent higher prices into their calculations, pushing more deposits into what accountants are allowed to officially define as "reserves", investors will wake up and drive share prices higher, Mr. Coxe says.
Now I am not a big proponent of the efficient markets theory, which says current share prices include all known information, but the idea people cannot properly value gold stocks based on existing gold prices, not forecasts, seems a bit much to me.
Mr. Coxe and Mr. Lassonde may be on firmer ground in their diagnosis of what's driving gold prices. Both see loose monetary policy, and the accompanying fear of higher inflation ahead, as an ongoing catalyst for gold prices. In the last few years, they've been more right than the skeptics. And with Ben Bernanke widely believed to be on the verge of announcing yet more monetary stimulus Thursday, bullion's price may get yet another nudge upward.
The case for gold stocks, however, seems to call for more of the same, and, importantly, for the market as a whole to wake up and embrace the vision of persistent price gains. It's almost as if it doesn't matter whether the gold bulls continue to be right. If the majority, including the analysts who follow the industry, continue to forecast declines in precious metals prices, then gold equities may never catch up.