hotlink protection within nginx breaks imagecache

if the imagecached images are already generated then it work fine, but with the following configuration, imagecache is unable to generate the imagecache versions

location ~ \.(jpg|png|gif)$ {
valid_referers server_names;
if ($invalid_referer) {
return 403;
}
}

is there another way to do this?
or does the imacache code need to be modified?
maybe another test in this code to allow imagecache to do its thing?

###FIXED###

for reference purposes:

the above 'location' statement needed to be within another 'location' statement later in the same configuration file
this one was blocking the latter from rewrites that imagecache needed

###
### Serve & no-log static files & images directly,
### without all standard drupal rewrites, php-fpm etc.
###
location ~* ^.+\.(?:jpe?g|gif|png|ico|bmp|svg|swf|pdf|docx?|xlsx?|pptx?|tiff?|txt|rtf|cgi|bat|pl|dll|aspx?|exe|class|otf|ttf|woff)$ {
+ valid_referers server_names;
+ if ($invalid_referer) {
+ return 403;
+ }
access_log off;
tcp_nodelay off;
expires 30d;
# allow files/images/downloads to be accessed without /sites/fqdn/
rewrite ^/files/(.*)$ /sites/$host/files/$1 last;
rewrite ^/images/(.*)$ /sites/$host/files/images/$1 last;
rewrite ^/downloads/(.*)$ /sites/$host/files/downloads/$1 last;
rewrite ^/.+/sites/.+/files/(.*)$ /sites/$host/files/$1 last;
try_files $uri =404;
}