Goldcorp (G.TO: Quote) should benefit this year from a continuing reduction in costs combined with a return of gold prices to record high levels, the company's chief executive said on Tuesday.

Chuck Jeannes, CEO of the world's second most valuable gold miner by market capitalization, said rising fears of inflation should push the metal above the record high of $1,030,80 hit last March.

I would be surprised if we don't reach a new high by the end of the year, he said.

Gold has outperformed other resources during the recent recession as investors have embraced its safe-haven reputation.

While gold has come off the highs hit earlier this year as some investors have embraced signs of economic strength, Jeannes expects billions in government stimulus will begin to raise fears of inflation, likely before actual consumer price gains take hold.

Markets move based on fear and expectation of what's going to happen, not when it actually does, he said.

Whether inflation appears in a year or six months or two years, we're focusing long term, and I do think (inflation is) going to dominate the trade for gold for a long time to come.

Gold was at $952 an ounce on Tuesday.

LOWER COSTS

Goldcorp has benefited as costs for energy, steel and reactants have fallen while gold prices have stayed strong.

The company reported a $290.9 million profit in the first quarter, as its cash costs per ounce were a slim $353, or $288 when using byproduct metals production as a cost offset.

Jeannes said he expects costs to continue to ease in the second quarter, despite oil prices that have begun to rise from lows hit early this year, and despite recent strengthening of the Canadian and Mexican currencies, which raises production costs in those countries.

He said Goldcorp has hedged about 50 percent of its fuel usage for the year at sub $50 per barrel prices -- which compares with oil at $62 on Tuesday -- and has locked in about 40 percent of its Canadian and Mexican currency exposure at levels better than its budgeted assumptions.

Both the Canadian dollar  and Mexican peso have risen more than 15 percent since early March.

Jeannes reaffirmed the company's production expectations of 2.3 million ounces this year, rising to 3.5 million ounces by 2013.

He said those forecasts did not factor in potential output from the Cochenour mine, which Goldcorp acquired when it bought Gold Eagle Mines last year.

Cochenour, which lies close to Goldcorp's flagship Red Lake mine in northwestern Ontario, could begin to produce in 2011 or 2012, Jeannes said. The richer Bruce Channel deposit, which lies below Cochenour, could begin to yield gold in 2014.

Goldcorp, which operates mines throughout the Americas, expects its huge Pensaquito project in Mexico to begin commercial production early next year, Jeannes said.

The company's shares rose 2 percent to C$42.25 on the Toronto Stock Exchange on Tuesday.

($1=$1.12 Canadian) (Reporting by Cameron French; editing by Peter Galloway)

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