In 2005, extraction costs for large operations averaged about $200 per ounce. Thus, gold's early upticks had a dramatic - and positive - impact on producers' bottom lines. One miner, in fact, estimated that a $10 rise in the price of gold back then translated into a $50 million boost to its earnings.

As the higher-grade ore was taken out, though, second-tier deposits had to be targeted and equipment updated to get at it. Hiring and training also had to be stepped up, further increasing production costs. The most recent report from Goldcorp. (NYSE: GG), Canada's second-largest producer, for example, puts extraction costs at $300 per ounce now. For marginal producers, extraction costs may be even higher.

Keep in mind that the refurbishment of productive capacity is taking place in an environment of rising inflation and a generally weaker dollar. That cranks up cash costs further.

Then there's the impact of exchange-traded vehicles. The increasing popularity of ETFs and ETNs based upon gold bullion or futures has siphoned off more and more of the demand for mining stocks. GLD, for example, posted an average daily volume of 2.5 million shares between May 2005 and January 2006. Volume has more than quadrupled. Over the past nine months, 11.6 million GLD shares change hands on an average day. Investors thirsty for a slug of gold exposure can now obtain it cheaply and efficiently without running it first through an equity filter.

Gold ETF (GLD) Volume

All this makes the current market decidedly different from 2005.

So, are gold stocks cheap or not?

Well, you can't put the ETF genie back in its bottle. And you'll just have to wait to see if there's actually been a turnaround in investors' sentiment for equities. As for mining stocks themselves, spiraling production costs, and the consequent pinch on margins, can't be good.