The gold price rallied $16.48 to $1,112.00 per ounce in spite of continued strength in the U.S. Dollar. With today’ s gains, the price of gold closed the week down 0.31%, and is down 9.3% from its high print of $1,1226.50 per ounce on December 2. Gold mining stocks, as measured by the Market Vectors Gold Mining ETF (GDX), followed the gold price higher to close the day up $1.09 to $46.29. However, gold stocks posted their second consecutive week of heavy losses, as the GDX finished the week down 3.2% and is 16.4% off its early December high of $55.40. Canada’s S&P/TSX Global Gold Index closed higher by 3.01 to 335.27, a 15.2% decline from its December 2 high.

Due chiefly to the leverage to the gold price they provide, several of the world’s largest gold mining companies have considerably underperformed the price of gold this past month as the U.S. Dollar has risen. Canadian-based Barrick Gold (ABX), the largest gold miner by both production profile as well as market capitalization, finished the day at $39.48, 17.8% below its 52-week high of $48.02. S&P 500 component, Newmont Mining, the second largest gold producer, closed the day at $48.26, 14.5% below its 52-week high of $56.45.

Many of the small- and mid-cap gold miners’ declines from recent highs have not only been greater in magnitude versus the gold price, but have also underperformed their larger capitalization counterparts. Losses of greater than 20% over the past two weeks are the norm for many early-stage gold companies. Nevertheless, many of the smaller gold explorers and miners have still posted gains considerably greater than the major gold stock indices, with many yielding year-to-date gains in the 150% area.

Major investment banks continue to upgrade their gold price forecasts for 2010 and beyond with CIBC World Markets being the latest to do so. CIBC’s report stated that, “We continue to expect precious metals to exhibit strong performance over the next few years, albeit at the cost of added volatility, which we consider normal and, arguably, healthy. We are providing arguments to support our belief that we are not in the midst of a gold bubble.” The report goes on to highlight several fundamental factors supporting the gold price, including stronger investment demand, safe haven investment status, and the lack of growing gold mine supply. In addition, CIBC asserts that the silver price will sustain a strong correlation to the gold price, and this trend will continue to be beneficial for silver.

As a result of their bullish outlooks, CIBC has raised its gold price forecasts for 2010 and 2011 from $1,100 and $1,200 per ounce to $1,200 and $1,400 per ounce, respectively. It has also increased its silver price forecasts for 2010 and 2011 from $16 and $18 per ounce to $18 and $20 per ounce, respectively. Furthermore, CIBC has raised its 12-18 month price target on numerous gold mining stocks, including Agnico-Eagle Mines (AEM), from $66 to $75 per share; Barrick Gold (ABX), from $50 to $56 per share; Newmont Mining (NEM), from $58 to $70 per share; and Yamana Gold (AUY), from $14.50 to $16 per share.

Notwithstanding the current correction in the gold price, the favorable fundamental backdrop has not changed for gold and gold mining stocks. The recent reversal in the gold sector has served its purpose of shaking out market participants who arrived late as sentiment became ebullient. Gold bulls are closely watching to see if the gold price can stabilize near the $1,100 per ounce level, consolidate its 25.8% year-to-date gain, and then challenge and exceed its early December record highs.