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Aaron Regent, President and Chief Executive Officer of the Barrick Gold Corp., speaks at the company's annual general meeting in Toronto Wednesday, April 27, 2011.

Darren Calabrese/THE CANADIAN PRESS/Darren Calabrese/THE CANADIAN PRESS

Gold prices topped $1,800 (U.S.) an ounce for the first time Wednesday, lighting a fire under the shares of gold miners that the market had previously ignored.

Among major producers, Barrick Gold Corp. was up 6.2 per cent Wednesday, while Goldcorp Inc. closed 7 per cent higher. Iamgold Corp. climbed 5.3 per cent, and Kinross Gold Corp. finished up 4.55 per cent.

While gold has been on a tear for months, shares of producers have generally risen only modestly, opening a major gap between their relatively modest valuations and the soaring fortunes of the metal they produce.

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"If the price of gold went up 10 per cent, normally the equities would go up 20 to 30 per cent – they've been going up 5 to 8 per cent," said CIBC World Markets analyst Barry Cooper.

Investors have preferred to buy bullion, either directly or through exchange-traded funds, rather than invest in gold miners, because of the many risks associated with producers.

Operating costs are rising for many gold miners, and Canadian and Australian producers that report in U.S. dollars are being hurt by their currencies' strength against the greenback, Mr. Cooper said. Costs for consumables used in gold mining, such as cyanide, have also increased.

"If you're trying to de-risk a portfolio, it makes sense to have a certain amount – and maybe a lot – invested in gold bullion rather than gold equities," Mr. Cooper said.

However, that attitude may be changing. Dundee Capital Markets analyst Paul Burchell said the best opportunities for investors in the gold mining sector lie in large to intermediate producers, which are undervalued compared to their levels in the previous financial crisis of 2008.

Other analysts also see a bullish case for gold mining shares. Desjardins analyst Ed Sollbach said in a note that he is increasing the weight of the gold mining sector in the firm's institutional portfolio because "gold stocks have lagged the appreciation in the gold price."

Desjardins analysts raised their gold price target to $1,820 and added AuRico Gold Inc. and Centerra Gold Inc. to their portfolio. Merrill Lynch raised its 12-month target to $2,000 based on the notion that investors will continue to seek safety as credit quality deteriorates in both Europe and the U.S.

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Capital Economics expects the price of gold to continue to rise, while it believes prices of other commodities, such as industrial metals and oil, have further to fall because of a slowing global economy.

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