Cautionary Statement on Forward-Looking Statements

Certain statements in this report constitute "forwarding-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. All statements other than statements of historical fact, included in this report regarding our financial position, business and plans or objectives for future operations are forward-looking statements. Without limiting the broader description of forward-looking statements above, we specifically note that statements regarding exploration, costs, grade, production and recovery rates, permitting, financing needs and the availability of financing on acceptable terms or other sources of funding are all forward-looking in nature.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including but not limited to, the factors discussed below in Part II; Item 1A. "Risk Factors," which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements and other factors referenced in this report. We do not undertake and specifically decline any obligation to publicly release the results of any revisions which may be made to any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

General

Through wholly-owned subsidiaries, Capital Gold Corporation owns 100% of 16 mining concessions located in the Municipality of Altar, State of Sonora, Republic of Mexico totaling approximately 3,544 hectares (8,756 acres or 13.7 square miles). We commenced mining operations on two of these concessions in late March 2007 and achieved gold production and revenue from operations in early August 2007. We sometimes refer to the operations on these two concessions as the El Chanate Project. Our results of operations differ from preceding periods because we now are realizing revenue from operations.

In May 2007, we completed an expanded 72-hole reverse circulation drilling campaign to identify additional proven and probable gold reserves at the El Chanate Project. The 72 holes totaled approximately 8,300 meters, and were positioned to fill in gaps in the ore body and test the outer limits of the currently known ore zones. We updated the assay database and digital geologic model and contracted Independent Mining Consultants, Inc. ("IMC") of Tucson, AZ to update our ore reserve and our mine plan. On August 30, 2007, IMC delivered to us an updated resource block model and an updated mine plan and mine production schedule (the "2007 Report"). The original feasibility study (the "2003 Study") on the El Chanate Project was prepared by M3 Engineering of Tucson in August 2003. M3 updated the 2003 Study in October 2005 (the "2005 Study"). An August 2006 technical report from SRK Consulting, Denver, Colorado (the "2006 Update") further updated the feasibility study.

According to the 2007 Report, our proven and probable reserve tonnage has increased by approximately 98 percent from 19.9 million to 39.5 million metric tonnes with a gold grade of 0.66 grams per tonne (43.5 million US short tons at 0.019 ounces per ton). The open pit stripping ratio is 0.6:1 (0.6 tonnes of waste to one tonne of ore). The updated pit design for the revised plan in the 2007 Report is based on a plant recovery of gold that varies by rock types, but is expected to average 66.8%. A gold price of US$550 (three year average as of July 31, 2007 as determined by IMC) per ounce was used to re-estimate the reserves compared with a gold price of $450 per ounce used in the previous estimate.

The following Summary is extracted from the 2007 Report. Please note that the reserves as stated are an estimate of what can be economically and legally recovered from the mine and, as such, incorporate losses for dilution and mining recovery. The 832,280 ounces of contained gold represents ounces of gold contained in ore in the ground, and therefore does not reflect losses in the recovery process. Total gold produced is estimated to be 555,960 ounces, or approximately 66.8% of the contained gold. The gold recovery rate is expected to average approximately 66.8% for the entire ore body. Individual portions of the ore body may experience varying recovery rates ranging from about 73% to 48%. Oxidized and sandstone ore types may have recoveries of about 73%; fault zone ore type recoveries may be about 64%; siltstone ore types recoveries may be about 48% and latite intrusive ore type recoveries may be about 50%.

El Chanate Project

Production Summary

                      Metric                 U.S.

Materials
Reserves
Proven                26.7 Million Tonnes    29.4 Million Tons @
                      @ 0.68 g/t*            0.0198 opt*
Probable              12.8 Million Tonnes    14.1 Million Tons @
                      @ 0.61 g/t*            0.0179 opt*
Total Reserves        39.5 Million Tonnes    43.5 Million Tons @
                      @ 0.66 g/t*            0.0192 opt*
Waste                 24.1 Million Tonnes    26.6 Million Tons
  Total               63.6 Million Tonnes    70.1 Million tons

  Contained Gold      25.89 Million grams    832,280 Oz

Production
Ore Crushed**         2.6 Million Tonnes     2.87 Million
                      /Year                  Tons/Year
                      7,500 Mt/d             8,267 t/d

Operating Days/Year   365 Days per year      365 Days per year
Gold Plant Average    66.8 %                 66.8 %
Recovery
Average Annual        1.35 Million grams     43,414 Oz
Production**
Total Gold Produced   17.29 Million grams    555,960 Oz

* "g/t" means grams per metric tonne, "opt" means ounces per ton, "Mt/d" means metric tonnes per day and "t/d" means tons per day. The reserve estimates are based on a recovered gold cutoff grade of 0.17 to 0.21 grams per metric tonne, depending on the operating year, and as described below.

** Based on mining rate of 7,500 metric tonnes per day of ore. It does not take into account the anticipated increase to 10,000 metric tonnes per day or more.

Through January 31, 2008, approximately 2.37 million tonnes of ore had been placed on the leach pad containing an estimated 63,627 ounces of gold. As of January 31, 2008, we estimate that we have 24,333 recoverable ounces on the leach pad. Gold production for the six months ended January 31, 2008, totaled approximately 19,433 ounces of Gold.

Gold production at El Chanate is currently near the feasibility study rate of 4,000 ounces per month. We have started to ramp up daily tonnage levels from 7,500 tonnes per day ("tpd") to 10,000 tpd. This should boost our gold production toward 5,000 ounces per month (60,000 ounces per year). Initially, we anticipate that the increased plant throughput will not require any capital since an additional ore crushing and stacking capacity was factored into the original design.

With the recent reserve increase, we are analyzing what steps are necessary to effectively increase production rates to a range of 70,000 to 80,000 ounces per year by 2009 and improve gold recoveries by conducting further metallurgical test work at our laboratory facilities at the mine. We will continue our ongoing studies to possibly increase production levels to 100,000 ounces per year thereafter. To this end, we have engaged Golder Engineering and its Mexican associates to supply engineering services for leach pad expansion and to study the impact of the planned mining increase. Golder previously successfully completed the construction management of our existing leach pads. In addition, we are discussing options available with the crusher manufacturer, Excel Machinery, with regards to adding an additional secondary crusher into the crushing circuit, to enable the system to handle increased tonnage. We anticipate that another crusher should move daily tonnage up closer to 15,000 tpd. The estimated cost to achieve these increased production rates will be approximately $7,000,000 over a two year period. Management has been and will continue to fund these expansion costs through revenues from gold sales, additional bank financing and/or the sale of our securities; however, we cannot assure that adequate additional funding, if needed, will be available to fund this expansion activity.

The leach pad expansion is estimated to be completed by the end of April 2008. For the six months ended January 31, 2008, our capital expenditure cost related to this leach pad expansion totaled approximately $1,625,000 which was fully funded from cash flow from operations. In addition, based on the studies noted above, specifically our ADR plant capacity, we have identified certain restrictions in the amount of solution that can be processed that are in the process of being addressed. Recently, we doubled the installed pumping capacity to increase solution flow to the leach pad and added additional carbon capacity to the system. We have purchased an additional set of carbon columns and a strip vessel to process an additional two tonnes of carbon per strip. We believe that this project will be completed by the end of our current fiscal year (July 30), thereby lifting the limitations on our current gold production. We anticipate remaining capital expenditures to amount to approximately $1,200,000 to complete the leach pad expansion and the ADR plant upgrade.

In December 2007, we completed an additional 26 hole reverse circulation drilling program amounting to 4,912 meters. The drill holes were mainly positioned to test the outer limits of the currently known ore zones. The results of this drilling campaign have not yet been included in our resource model as we continue to receive assay results.

We are actively investigating other exploration projects in northern Mexico.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited interim financial statements and related notes included elsewhere in this report.

Three months ended January 31, 2008 compared to Three months ended January 31, 2007

Net income for the three months ended January 31, 2008 was approximately $2,126,000 compared to a net loss, of approximately $1,673,000 for the three months ended January 31, 2007. The principal reason for this transition was our realizing revenue from operations during the current quarter. Net income per common share was $0.01 for the three months ended January 31, 2008, on both a basic and diluted basis. The net loss per share for the same period in 2006 was $0.01 on a basic basis.

Revenues & Costs Applicable to Sales

Gold sales in the current period totaled approximately $8,043,000. We sold 9,550 ounces at an average realizable price per ounce of $843 (the London Bullion Market Association average gold PM fix was $835 for the current period). Costs applicable to sales were approximately $2,419,000 for the current period. There were no metal sales in 2006. Our cash cost and total cost per ounce sold was $252 and $315, respectively, for the current period.

Depreciation and Amortization

Depreciation and amortization expense during the three months ended January 31, 2008 and 2007 was approximately $ 881,000 and $273,000, respectively. The primary reason for the increase of approximately $608,000 was primarily due to depreciation and amortization charges related to the El Chanate development and equipment costs being incurred in the current period. There were no such charges for the same period in the prior year as these assets were placed in service in April 2007. Depreciation and amortization also represents deferred financing costs resulting from the Credit Facility entered into in August 2006 with Standard Bank Plc. This accounted for approximately $272,000 of the amortization expense during the three months ended January 31, 2008 and 2007, respectively.

General and Administration Expense

General and administrative expenses during the three months ended January 31, 2008 were approximately $1,321,000, an increase of approximately $772,000 or 141% from the three months ended January 31, 2007. The increase in general and administrative expenses resulted primarily from: 1) higher salaries and wages including the awarding of cash bonuses to officers and employees of approximately $315,000 and the granting of stock options and restricted stock to our officers and employees under our 2006 Equity Incentive Plan amounting to approximately $219,000, 2) higher investor relations and travel fees, and 3) an increase in insurance costs versus the same period a year earlier as we were not yet in production in the prior period. The above mentioned increases in compensation were granted based upon recommendations from an independent report on executive compensation. This independent report, requested by our Compensation Committee, was obtained in order to assist us in attracting and retaining individuals of experience and ability, to provide incentive to our employees and directors, to encourage employee and director proprietary interests in the Company, and to encourage employees to remain in our employ.

Exploration Expense

Exploration expense during the three months ended January 31, 2008 and 2007 was approximately $496,000 and $301,000, respectively, or an increase of $195,000 or 65%. The primary reason for the increase in exploration expenses was the result of our drilling program implemented during the current quarter.

Equity Based Compensation

Equity based compensation during the three months ended January 31, 2008 was approximately $50,000 as compared to $101,000 in costs for the same period a year earlier. These costs primarily represent the equity compensation expense from the issuance of stock options for professional services provided to non-employees during the current and prior period.

Other Income and Expense

Our loss on the change in fair value of derivative instruments during the three months ended January 31, 2008 and 2007, was approximately $342,000 and $286,000, respectively, and was reflected as an other expense. This was primarily due to the change in fair value of our two identically structured derivative contracts with Standard Bank which correlates to fluctuations in the gold price. These contracts were not designated as hedging derivatives; and therefore, special hedge accounting does not apply.

Interest expense was approximately $288,000 for the three months ended January 31, 2008 compared to approximately $175,000 for the same period a year earlier. This increase was mainly due to higher interest charges incurred during the current period related to our fully outstanding Credit Facility with Standard Bank. As of January 31, 2008 and 2007, there was $12,500,000 and $8,750,000 outstanding, respectively, on this credit facility.

Six months ended January 31, 2008 compared to Six months ended January 31, 2007

Net income for the six months ended January 31, 2008 was approximately $3,873,000 compared to a net loss, of approximately $2,834,000 for the six months ended January 31, 2007. The principal reason for this transition was our realizing revenue from operations during the six months ended January 31, 2008. The Company's first gold sale occurred in August 2007. Net income per common share was $0.02 for the six months ended January 31, 2008, on both a basic and diluted basis. The net loss per share for the same period in 2006 was $0.02 on a basic basis.

Revenues & Costs Applicable to Sales

Gold sales for the six months ended January 31, 2008 totaled approximately $14,569,000. We have sold 18,744 ounces at an average realizable price per ounce of $779 (the London Bullion Market Association average gold PM fix was $772 for this period). Costs applicable to sales were approximately $4,568,000 for the current period. There were no metal sales in the prior period. Our cash cost and total cost per ounce sold was $246 and $314, respectively, for the six months ended January 31, 2008.

Depreciation and Amortization

Depreciation and amortization expense during the six months ended January 31, 2008 and 2007 was approximately $ 1,830,000 and $346,000, respectively. The increase of approximately $1,484,000 was primarily due to depreciation and amortization charges related to the El Chanate development and equipment costs being incurred in the current period. There were no such charges for the same period in the prior year as these assets were placed in service in April 2007. Depreciation and amortization also represents deferred financing costs resulting from the Credit Facility. This accounted for approximately $544,000 and $332,000 of the amortization expense during the six months ended January 31, 2008 and 2007, respectively.

General and Administration Expense

General and administrative expenses during the six months ended January 31, 2008 were approximately $2,172,000, an increase of approximately $991,000 or 84% from the six months ended January 31, 2007. See commentary contained in "General and Administrative Expense" within the "Three months ended January 31, 2008 compared to Three months ended January 31, 2007" section above for more detail on this increase.

Exploration Expense

Exploration expense during the six months ended January 31, 2008 and 2007 was approximately $631,000 and $514,000, respectively, or an increase of $117,000 or 23%. The primary reason for the increase in exploration expenses was the result of our drilling program implemented during the current period.

Equity Based Compensation

Equity based compensation during the six months ended January 31, 2008 was approximately $108,000 as compared to $101,000 in costs for the same period a year earlier. These costs primarily represent the equity compensation expense from the issuance of stock options for professional services provided to non-employees during the current and prior period.

Other Income and Expense

Our loss on the change in fair value of derivative instruments during the six months ended January 31, 2008 and 2007, was approximately $700,000 and $528,000, respectively, and was reflected as an other expense. This was primarily due to the change in fair value of our two identically structured derivative contracts with Standard Bank which correlates to fluctuations in the gold price. These contracts were not designated as hedging derivatives; and therefore, special hedge accounting does not apply.

Interest expense was approximately $569,000 for the six months ended January 31, 2008 compared to approximately $198,000 for the same period a year earlier. This increase was mainly due to higher interest charges incurred during the current period related to our fully outstanding credit facility with Standard Bank. As of January 31, 2008 and 2007, there was $12,500,000 and $8,750,000 outstanding, respectively, on this credit facility.

Changes in Foreign Exchange Rates

During the six months ended January 31, 2008, we recorded equity adjustments from foreign currency translations of approximately $27,000. These translation adjustments are related to changes in the rates of exchange between the Mexican Peso and the US dollar and are included as a component of other comprehensive income.

Summary of Quarterly Results
(000's except per share Data)

                                       For the three     For the three     For the Six     For the Six
                                       Months ended      Months ended     Months ended    Months ended
                                       January 31,        January 31,      January 31,     January 31,
                                           2008              2007             2008            2007

Revenues                                        8,043                 -          14,569               -
Net Income (loss)                               2,126            (1,673 )         3,873          (2,834 )
Basic net income (loss) per share                0.01             (0.01 )          0.02           (0.02 )
Diluted net income (loss) per share              0.01                 -            0.02               -

Liquidity and Capital Resources

As of January 31, 2008, we had approximately $4,997,000 in cash and cash equivalents, an increase of $2,772,000 over July 31, 2007. Working capital was approximately $9,750,000, an increase of $3,407,000 over July 31, 2007. Cash provided by operating activities during the six months ended January 31, 2008 was approximately $3,480,000, which primarily represents cash flows resulting from our realization of revenue from operations during the six months ended January 31, 2008. Cash used in investing activities during the six months ended January 31, 2008, amounted to approximately $2,899,000, primarily from the leach pad expansion and the acquisition of equipment, including additional conveyors and ADR plant equipment, as well as additional water rights related to our El Chanate Project. Cash provided by financing activities during the six months ended January 31, 2008 amounted to approximately $2,164,000, primarily from the exercising of 6,321,500 warrants for gross proceeds of approximately $2,156,000. We believe that our available funds in conjunction with anticipated revenues from gold sales will be adequate to cover operating activities at El Chanate for the life of mine as well as our leach pad and ADR plant expansion activities. We anticipate remaining capital expenditures to amount to approximately $1,200,000 to complete the leach pad expansion and the ADR plant upgrade.

In March 2006, we entered into a gold price protection arrangement with Standard Bank to protect us against future fluctuations in the price of gold. We agreed to a series of gold forward sales and call option purchases in anticipation of entering into the Credit Facility. Under the price protection agreement, we have agreed to sell a total volume of 121,927 ounces of gold forward to Standard Bank at a price of $500 per ounce on a quarterly basis during the period from March 2007 to September 2010. We will also purchase call options from Standard Bank on a quarterly basis during this same period covering a total volume of 121,927 ounces of gold at a price of $535 per ounce. To date, rather than modifying the original Gold Price Protection agreement with Standard Bank to satisfy these forward sale obligations, we have opted for a net cash settlement between the call option purchase price of $535 and the forward sale price of $500, or $35.00 per oz. We have paid Standard Bank approximately $1,051,000 on the settlement of 30,021 ounces with corresponding reductions in our derivative liability ($591,000 or 16,895 ounces of gold) during the six months ended January 31, 2008. The remaining ounces to settle with regard to this agreement amounted to 91,906 as of January 31, 2008.

On October 11, 2006, prior to our initial draw on the Credit Facility, we entered into interest rate swap agreements in accordance with the terms of the Credit Facility, which requires that we hedge at least 50 percent of our outstanding debt under this facility. The agreements entered into cover $9,375,000 or 75% of the outstanding debt. Both swaps covered this same notional amount of $9,375,000, but over different time horizons. The first covered the six months that commenced on October 11, 2006 and terminated on March 31, 2007 and the second covers the period from March 30, 2007 through December 31, 2010. We intend to use discretion in managing this risk as market conditions vary over time, allowing for the possibility of adjusting the degree of hedge coverage as we deem appropriate. However, any use of interest rate derivatives will be restricted to use for risk management purposes.

We received a mandate letter, dated February 27, 2008, from Standard Bank to refinance the existing project finance facility on the El Chanate mine. The key anticipated amendments to the refinance include: 1) removal of cash restrictions and covenants, 2) reduction of the finance interest rate by 1.5%, 3) addition of a five million dollar line of credit at LIBOR + 2%, and 4) exercise of a portion of the warrants currently held by Standard Bank to provide additional support for El Chanate expansion plans and to fully fund the debt service reserve account. We anticipate a closing date by the end of April 2008.

While we believe that our available funds in conjunction with anticipated revenues from gold sales will be adequate to cover operating activities at El Chanate and general and administrative expenses for the life of the mine as well as the remaining capital costs associated with the leach pad and ADR plant expansion, if we encounter unexpected problems we may need to raise additional capital. We also may need to raise additional capital for significant property acquisitions and/or exploration activities. To the extent that we need to obtain additional capital, management intends to raise such funds through the sale of our securities and/or joint venturing with one or more strategic partners. We cannot assure that adequate additional funding, if needed, will be available. If we need additional capital and we are unable to obtain it from outside sources, we may be forced to reduce or curtail our operations or our anticipated exploration activities. Please see "We just recently started to receive cash flow from operations and, historically, have relied on external funding sources. While we believe that we will continue to generate cash flow and profits from operations, if we encounter unexpected problems, we may need to raise additional capital. If additional capital is required and we are unable to obtain it from outside sources, we may be forced to reduce or curtail our operations or our anticipated exploration activities." In Part II; Item 1A. "Risk Factors" below.

Environmental and Permitting Issues

Management does not expect that environmental issues will have an adverse material effect on our liquidity or earnings. In Mexico, although we must continue to comply with laws, rules and regulations concerning mining, environmental, health, zoning and historical preservation issues, we are not aware of any significant environmental concerns or existing reclamation requirements at the El Chanate concessions. We received the required Mexican government permits for construction, mining and processing the El Chanate ores in January 2004. The permits were extended in June 2005. Pursuant to the extensions, once we file a notice that work has commenced, we have one year to . . .