Industry Overview
Performance Summary for the Month
Gold averaged US$1,591/oz in May, down US$60 or 3.6% from April’s average of
US$1,651/oz. The U.S. Dollar Index was up 5.4% in May. The S&P/TSX Gold
Index continued to underperform the price of gold, decreasing by 8.4% on a U.S.
dollar basis compared to gold, which was down 6.3%. The best performers were
Torex (TXG-T, not rated) and Yamana (YRI-T, BUY), up 6.4% and 4.6%,
respectively. The poorest performers were Avion (AVR-T, not rated) and Jaguar
(JAG-T, REDUCE), down 49.0% and 56.4%, respectively.
Things to Watch For in the Coming Month
Although operating costs have been rising across the broader industry, gold
producer margins remain above $1,000/oz. Despite this, multiples are near trough
levels. This leads us to believe that although gold equities have traded lower so far
in 2012, they could rebound through the remainder of the year.
Our Sector Stance: Overweight
We remain positive on gold’s medium- to longer-term outlook, and, despite the
prolonged underperformance of gold equities, we continue to recommend an
overweight sector stance. In our view, as equities continue to trade higher, gold
equities should follow suit and reverse the trend of underperformance that has been
frustrating investors.
In our view, the fundamental factors that have underpinned the 11-year bull market
for gold remain intact, including:
• potential monetary stimulus, should the Eurozone continue to deteriorate;
• central banks will likely remain net buyers of gold, as emerging economies
look to diversify their reserve holdings;
• investment demand for gold (at the institutional and retail level) should remain
strong, as individuals look to diversify their positions;
• questions remain about the long-term viability of the U.S. dollar as the world’s
reserve currency;
• global currency and trade imbalances remain;
Steven Green, CFA
Greg Barnes
Daniel Earle
Scott Parsons, CFA
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• gold mine supply remains challenged over the longer term; and
• increased demand for labour and materials, further challenging the cost base to
produce an ounce of gold.
We forecast that gold will average US$1,648/oz in 2012, US$1,750/oz in 2013,
US$1,700/oz in 2014. We project a long-term price of US$1,500/oz, based on our
spot-gold valuation methodology. We believe that investors are increasingly
valuing gold equities on a spot basis. Given the unique nature of gold as a
monetary asset, traditional supply and consumption flows are less informative for
gold than they are for base metals.
Eldorado Gold Corp.
(ELD-T, EGO-N, C$11.46) 12-Month Target: C$19.00
Steve Green, CFA
We added Eldorado to the Action List on April 13. Eldorado has what we view as
the best growth profile among its large cap peers and industry low cash costs. We
are expecting production to approach 1.7 million oz by 2016, a more than 150%
increase over 2011 production with the start up of five new mines. The company
also expects to maintain very low cash costs during that time frame, averaging
$350/

I added Eldorado to show what the expectations were for Eldorado.

They have more proven gold and there recovery costs are lower than ours but at $350.00 an ounce ,I believe this is what Brian may be thinking If they can do it why can't we..

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