GOLD PRICE NEWS - The gold price sunk $14 to $1,106, fueling a drop in gold stocks as the Market Vectors Gold Miners ETF (GDX) relinquished its morning gains and fell $0.72 to $44.86 in mid-day trading. Market participants used weakness in the gold price to liquidate positions in gold stocks, causing the GDX to move lower for the third consecutive day. As a result of today’s decline in gold stocks, the GDX - which contains many gold stocks that provide leverage to the gold price - reduced its gain in March from 4.8% to 2.2%. The weakness gold stocks included declines of 0.8% and 0.3%, respectively, in Canadian-based Agnico-Eagle Mines (AEM) and Yamana Gold (AUY) - two of the ten largest holdings in the GDX.

Gold stocks opened the day stronger as the gold price rallied to $1,125 per ounce, with the GDX rising as much as 1.2% to $46.14 this morning. However, as the U.S. Dollar Index (DXY) recovered the majority of its earlier 0.4% decline, the price of gold and gold stocks gave up their gains and turned lower. The gold price fell by as much as $17 to $1,103 before stabilizing near $1,106 per ounce, while the GDX dropped as much as $0.90 to $44.68 before recovering slightly to $44.88 per share.

News from the gold stocks sector was on the light side today, although a few headlines did emerge on gold companies. Shares of Northgate Minerals (NXG) - based in Canada and a small component of the GDX - were upgraded to “Neutral” from “Underperform” by Macquarie Research. Citing fourth quarter earnings and cash flow per share figures which beat the firm’s forecasts, Macquarie issued a 12-month price target of C$3.60 per share - a 23% premium to Northgate’s closing price yesterday of C$2.93 per share.

Meanwhile, Canadian-based Victoria Gold (VIT.TSXV) announced results from an NI 43-101 compliant pre-feasibility study at its Eagle Gold Project in the Yukon Territory. Chad Williams, President and CEO of Victoria Gold, commented that “By completing this successful independent study and adding ounces of gold through a short 2009 exploration campaign, the Company has already added considerable value to this project which we acquired less than one year ago.”

With today’s selloff in gold stocks, the GDX has fallen by 3.4% over the past three days - after last week posting its best weekly gain since early January. Year-to-date the GDX has traded lower by 2.9%, and fallen by 19.0% since its 52-week high of $55.40 from early December - when the gold price reached its all-time high of $1,226.50 per ounce.

Although gold stocks have not performed very well over the past few months, their longer-term uptrend remains intact. Over the past 52 weeks the GDX has surged 51.6%. Moreover, gold stocks were one of the few sectors of the equity market to post a positive return during the past decade. While gold stocks surged in 2009 - particularly in the second half of the year - the recent correction has allowed shares of gold companies to consolidate their gains and digest the volatile economic landscape before determining their next larger move. In addition, the correction in gold stocks, as well as in the gold price, has undoubtedly created a considerable amount of skepticism amongst gold investors - a healthy development from a contrarian perspective.