LAKE SHORE GOLD CORP 6.25 PCT DEBS T.LSG.DB

Canaccord Notes on Gold

[west12]

Gold Futures June '06 (GOLDC : NYMEX : US$654.40) Net Change: 18.20, % Change: 2.86% People were still asking who shot J.R. and Arnold was still asking what you were talking about. Gold hit levels on Friday it hasn't seen since late 1980, though gold stocks are still lagging bullion. The media fingered U.N. Security Council officially stated that Iran failed to meet its deadline to halt uranium enrichment and has refused to cooperate with U.N. appointed inspectors. It does not hurt the U.S. dollar continues to break down. A lower dollar makes the dollar-denominated commodities cheaper for non- American buyers and is arguably a major reason why the U.S. dollar belongs lower. Also, UBS raised price target on gold, which received a lot of media attention. "Fund flows into commodities as an asset class has been more vigorous than anticipated, driven by strong underlying fundamentals supported by a broad questioning of the value of the U.S. dollar," they said. UBS expects gold to average US$630 an ounce this year and US$750 next year. On a risk-adjusted basis, gold would have to hit US$2,200 on an inflation-adjusted terms in order to match the 1980 high of US$850. Prices are not as high as they may appear.