Strong Gold Prices Reflect India and Chinese Demand

As an asset class, gold outperformed compared with the broader commodity complex and international equities on a risk-adjusted basis, only slightly under-performing against US and emerging market equities in the first quarter of 2010.  On average, gold remained among the least volatile of the commodities, with annualized average volatility falling to 17.6 percent from 20 percent in the previous quarter.

World Gold Council Investment Research Manager, Juan Carlos Artigas commented, What becomes clear is that, gold's continuing upward price trend is anchored in solid fundamentals.  A strong recovery in Indian jewelery market from the low levels of demand experienced in early 2009, was further reinforced by rupee appreciation against the dollar. When coupled with strong physical demand in China during the quarter, these trends created positive support for gold.

European credit woes based on the underlying finances of Portugal, Ireland, Italy, Greece and Spain, had a negative impact on the euro and the British pound both depreciating by 5.7 percent and 6.1 percent, respectively, against the US dollar over the quarter. Given the function gold plays as a hedge against the dollar, the weaker European currencies played a role in keeping the price of the yellow metal from rising at the same rate as it had done during previous quarters when the US dollar fundamentals were questionable.

Spot Price Movement

After rising to a year to date high last week, gold has retreated modestly as the latest move by China to constrain money supply triggered demand concerns and a bailout strategy for debt-laden Greece eased safety considerations. On May 3, spot gold rose to $1,182.95 per troy ounce in early morning trading before leveling off in the range of $1,182.46. On Friday, the precious metal closed at $1,177.25 per troy ounce.

The spot price of gold hit record highs in euro and sterling terms with U.S. June gold futures rising to highs not seen since Dec 2009, at $1,184.00 per troy ounce. The yellow metal has gained almost 6 percent in April, its biggest one-month rise since November, as credit ratings downgrades of Greece, Spain and Portugal have dispersed a wave of risk aversion, channeling money into gold.  Reuters reported that based on technical data, gold is on a bullish trend toward $1,261 per ounce.  Scott Redler, Chief Strategist for T3 Capital, forecasts a very optimistic price range of $1,300 to $1,400 per ounce by the end of the year.

Mining News

Agnico-Eagle Mines Ltd. (NYSE:AEM) reported quarterly earnings on April 29 recording a 104.4 percent gain in earnings per share on a quarterly basis.  A strong report of 105 percent increase in gold production and a similar increase in gross mine profit was more than offset by non-cash foreign currency translation losses, increased depreciation, non-cash stock-based compensation and deferred tax provisions.

Chief Executive Officer for Agnico-Eagle, Sean Boyd was optimistic on the report, Strong operating earnings and cash flows are being generated from our six gold mines. Three of the mines are now operating at steady state and the other three are in the stage of final commissioning and optimization.  With internal expansions being studied for Pinos Altos, Meadowbank and Kittila, we are well positioned to continue to increase our gold reserves, gold production, earnings and cash flows. Each of these important performance metrics should continue to grow on a per share basis.

Yamana Gold, Inc. (NYSE:AUY) is scheduled to release quarterly earnings results after the market closes on May 3. The company currently has an earnings per share ratio (EPS trailing twelve months) of 0.29 and investors in the Canadian-based gold producer with a market capitalization of $8 billion are hoping to see that number grow.

On April 1, the company reaffirmed its annual 2010 guidance, indicating that gold equivalent production is expected to be about 240,000 gold equivalent ounces (GEO) for the first quarter with cash costs expected to be below $200 per GEO. Copper production in the first quarter of 2010 is expected to be 29 to 30 million pounds.  Yamana has also guided that copper production is expected to be 150 million - 160 million pounds in 2010 and, similar to the case for gold production, the company expects production to increase quarter-over-quarter throughout the year.