Gold finally puts shine on TSX – by Peter Koven (National Post – August 11, 2011)

The National Post is Canada’s second largest national paper. Peter Koven is their mining reporter.

For the first time in months, gold equities have more momentum than their underlying commodity. While gold bullion has generated most of the attention this week as it reached uncharted levels, Canadian gold stocks registered even bigger gains, suggesting investors are starting to recog-nize the massive margins and cash flow mining companies can generate at these prices.

Among the big winners so far this week are Yamana Gold Inc. (up 15%), Barrick Gold Corp. (up 11%) and Eldorado Gold Corp. (up 14%). They all jumped sharply Wednesday as the key gold futures contract topped US$1,800 an ounce for the first time. That performance helped the Toronto Stock Exchange end the day in positive territory. The TSX’s gains came despite huge drops on U.S. stock exchanges.

Since the financial crisis in 2008, gold bullion has gone on a fantastic run while gold stocks have been a disappointment. Investors have worried about rising costs, political uncertainty and many other factors as they preferred bullion during turbulent times.

Sources said the significant drop in oil prices over the past couple of weeks has brought new attention to the mining companies.

Oil is a key input cost, and lower prices mean bigger margins.

“What we’ve been seeing in the last little while is that input costs are contained – they’re not as bad as people think they are,” Yamana chief executive Peter Marrone said in an interview. “If there’s upside pressure, it’s more modest than the movement in the [gold] price.”

He added that investors are starting to accept gold prices at “sustainably higher” levels than what the equities have been pricing in.

Gold bullion, meanwhile, climbed as much as 3% Wednesday as investors worried about the health of the French banking system, which is heavily exposed to eurozone sovereign debt.

That just adds to the global economic uncertainty for investors, who are driving gold to its biggest rally since 2008. The metal has climbed roughly US$150 an ounce in the month of August alone, and has closed higher in nine of the past 10 trading sessions.

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