Cannon Exploration Inc. (fka CNEX)

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Gold Price Tops $1,200 as Demand Surges
May 28th, 2010 - 9:18 am | by GoldAlert
GOLD PRICE NEWS - The gold price appears set to close back above the $1,200 per ounce level after a volatile week. The price of gold has steadily moved higher in recent days after dipping below $1,180 per ounce on Monday. Sovereign debt fears temporarily calmed down, the euro has stabilized, and stocks and commodities have surged over the past three days.

After a bout of risk aversion early in the week sent the prices of risky assets tumbling, markets have recovered. Copper is set to rise for the first time in seven weeks while oil, after suffering a steep correction in excess of 20%, looks to close higher for the first time in four weeks. The gold price has languished relative to its more cyclical counterparts, but has still displayed strong relative performance over the course of the month.

Demand for physical gold remains robust. After the close yesterday, the SPDR Gold Trust (GLD), which acts as a proxy for the gold price, filed a follow-on offering with the SEC. The GLD will be eligible to offer 239.3 million shares, which would increase its outstanding share count by 57.5%. The offering by the GLD comes on the back of the May 27 announcement from Sprott Physical Golf Trust (PHYS) that it sold 21.6 million units, or $243 million in order to purchase gold bullion - expected to amount to approximately 200,000 troy ounces of gold.

The turmoil in Greece and the more global issue of sovereign debt concerns have driven investment inflows into gold. Declining confidence in paper money is evident in the premiums that are being paid for gold coins. According to coinupdate.com, the Bank of Greece is receiving more than $1,700 per ounce of gold and “prices are said to be going for even more than that on the black market.” The report went on to state that “A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds.”

Gold stocks have begun to respond to a $1,200 gold price, steadily appreciating over the past four days. The Market Vectors Gold Miners ETF (GDX) has climbed 6.3% this week heading into Friday’s open. Gains in the largest gold miners, such as Barrick Gold (ABX) and Goldcorp (GG) have been dwarfed by appreciation in many small- and mid-cap miners, which have offered investors more beta, or leverage, to the gold price.

The only gold stock to be included in the S&P 500, Newmont Mining (NEM) held an analyst day yesterday, at which the company reiterated its 2010 guidance of 5.3 to 5.5 million gold ounces at cash costs of $450 to $480 per ounce. Newmont executives did state their intention to maintain gold production of over 5 million ounces per year annually - a fact that caused analysts to speculate on how active the company might be on the acquisition front. NEM also commented on their strong and rising cash balance and discussed the possibility of raising its dividend, or possibly issuing a special dividend in order to return cash to its shareholders. Following the analyst day, National Bank analyst Tanya Jakusconek increased her target price on Newmont Mining to $66.00 per share from $60.00, maintaining a “Sector Perform” rating.