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.

On August 30, 2007, Independent Mining Consultants, Inc. ("IMC") of Tucson, AZ delivered to us an updated resource block model and an updated mine plan and mine production schedule (the "2007 Report"). According to the 2007 Report, our proven and probable reserve tonnage increased by approximately 98% 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
    Probable             @  0.68  g/t*           @  0.0198 opt*
    Total Reserves       12.8 Million            14.1 Million Tons
  Waste                  Tonnes @ 0.61  g/t*     @  0.0179 opt*
   Total                 39.5 Million            43.5 Million Tons
                         Tonnes @ 0.66  g/t*     @  0.0192 opt*
   Contained Gold        24.1 Million Tonnes     26.6 Million Tons
                         63.6 Million Tonnes     70.1 Million tons
Production
    Ore Crushed**         25.89 Million grams    832,280 Oz


   Operating Days/Year   2.6 Million Tonnes      2.87 Million Tons/Year
   Gold Plant Average    /Year                     8,267 t/d
Recovery                   7,500 Mt/d
   Average Annual                                  365 Days per year
Production**               365 Days per year       66.8 %
   Total Gold Produced     66.8 %                  43,414 Oz
                           1.35 Million grams     555,960 Oz
                          17.29 Million grams

* "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.

In the mineral resource block model developed, with blocks 6m (meters) x 6m x 6m high, Measured and Indicated resources (corresponding to Proven and Probable reserves respectively when within the pit design) were classified in accordance with the following scheme:

· Blocks with 2 or more drill holes within a search radius of 80m x 70m x 40m and with a relative kriging (a geostatistical calculation technique) standard deviation less than or equal to 0.45 were classified as Measured (corresponding to Proven);

· Blocks with 1 hole within the search radius of 80m x 70m x 40m and with a relative kriging standard deviation of 0.60 or less, blocks with 2 holes and a kriging standard deviation of 0.70 or less, blocks with 3 holes and a kriging standard deviation of 0.80 or less, blocks with 4 holes and a relative kriging standard deviation of 0.90 or less and all blocks with 5 or more holes within the search radius were classified as Indicated (corresponding to Probable), unless they met the above criterion for Proven;

· Blocks with a grade estimate that did not meet the above criteria were classified as Inferred (and which was classed as waste material in the mining reserves estimate);

· Blocks outside the above search radii or outside suitable geological zones were not assigned a gold grade or a resource classification.

The proven and probable reserve estimates are based on a recovered gold cutoff grade of 0.17 to 0.21 grams/tonne, depending on the operating year. The variation is due to balancing the mine and plant production capacities on a year by year basis for the plan. (A recovered gold cutoff grade was used for reserves calculation as the head gold grade cutoff varies with the different ore types due to their variable gold recoveries.) The internal (in-pit) and break even cutoff grade calculations are as follows:

Cutoff Grade Calculation            Internal Cutoff Grade Break Even Cutoff Grade
  Basic Parameters
  Gold Price                         US$550/oz             US$550/oz
  Shipping and Refining              US$ 4.14/oz           US$ 4.14/oz
  Gold Recovery                      66.8%                 66.8%
  Royalty                            4% of NSR             4% of NSR

  Operating Costs per Tonne of Ore   $ per Tonne of Ore    $ per Tonne of Ore
  Mining *                           0.070                 1.360
  Processing/Leach Pad               1.980                 1.980
  G&A                                0.800                 0.800
  Total                              2.850                 4.140

  Internal Cutoff Grade              Grams per Tonne       Grams per Tonne
   Head Grade Cutoff (66.8% recov.)  0.25                  0.37
   Recovered Gold Grade Cutoff       0.17                  0.25

* The calculation of an internal cutoff grade does not include the basic mining costs (which are considered to be sunk costs for material within the designed pit). The $0.07 per tonne cost included is the incremental (added) cost of hauling ore over hauling waste, and which is included in the calculation.

Through October 31, 2008, approximately 5,000,000 tonnes of ore has been placed on the leach pad. During the three months ended October 31, 2008, approximately 1,029,000 tonnes of ore was placed on the leach pad amounting to approximately 18,600 recoverable ounces placed. Gold production for the three months ended October 31, 2008, totaled 11,888 ounces .

Gold production at El Chanate is currently at a level of approximately 5,000 ounces per month inclusive of gold equivalents. We have implemented steps necessary to effectively increase production rates to approximately 70,000 ounces per year in 2009. As of October 31, 2008, we have expended approximately $4,000,000 on the leach pad expansion and ADR plant improvements. The ADR plant improvements were completed as of the date of this filing. Management has been and anticipates that it will continue to fund these expansion costs with its cash on hand as well as through revenues from gold sales.

In September 2008, we initiated a 10 hole deep core drilling campaign at our El Chanate mine consisting of 2,500 meters which targeted the southern extremity of the main pit. Once this data has been compiled and analyzed, it will be combined with results from a previous drilling campaign initiated in December 2007 which consisted of 26 reverse circulation holes amounting to 4,912 meters. These drill holes were mainly positioned to test the outer limits of the currently known ore zones within the main pit. All data will be combined with the intention of increasing proven and probable reserves.

We recently leased 12 mining concessions totaling 1,790 hectares located northwest of Saric, Sonora. In addition, we own a claim for approximately 2,200 additional hectares adjacent to this property. These concessions and this claim are about a 60 mile drive northeast of the El Chanate project. Mineralization is evident throughout and is hosted by shear zones and quartz veins in granite intrusive. A short drill program, along with geochemical work, remains underway.

We continue to actively investigate 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 October 31, 2008 compared to Three months ended October 31, 2007

Net income for the three months ended October 31, 2008 and 2007was approximately $1,936 and $1,747, respectively, representing an increase of approximately 11% over the prior period. Net income before income taxes was $2,863 and $1,747 for the three months ended October 31, 2008 and 2007, respectively, which represented an increase of 64%. There was no income tax expense in the prior period due to a net operating loss carryforward within our wholly-owned subsidiary, MSR, that offset any tax due. This loss carry-forward was fully utilized as of December 31, 2007. Net income per common share was $0.01 for the three months ended October 31, 2008 and 2007, on both a basic and diluted basis, respectively.

Revenues & Costs Applicable to Sales

Gold sales in the current period totaled approximately $9,175 as compared to $6,526 in the prior period representing an increase of approximately $2,649 or 41%. We sold 11,413 ounces at an average realizable price per ounce of approximately $805 in the current period. We sold 9,194 ounces at an average realizable price per ounce of $710 during the same period last year.

Costs applicable to sales were approximately $3,042 and $2,205, respectively, for the three months ended October 31, 2008 and 2007, an increase of approximately $837 or 38%, which increased in proportion with our increase in revenues. Our cash cost and total cost per ounce sold, excluding Royal Gold's 10% net profit interest (formerly owned by AngloGold) was $255 and $295, respectively, for the three months ended October 31, 2008. If we factor in this net profit interest cost for the same period, our cash cost and total cost per ounce sold would be $270 and $310, respectively. As of October 31, 2008, we had approximately $896 accrued towards this net profit interest. We anticipate incurring the remaining portion of the net profit interest within this calendar year.

Revenues from by-product sales (silver) are credited to Costs applicable to sales as a by-product credit. Silver sales totaled 25,334 ounces at an average price of $11.29 per ounce amounting to approximately $286 during the three months ended October 31, 2008. There were no silver sales during the same period last year.

Depreciation and Amortization

Depreciation and amortization expense during the three months ended October 31, 2008 and 2007 was approximately $703 and $949, respectively. The primary reason for the decrease of approximately $246 was due to amortization charges recorded in the prior period related to the repurchase of the 5% net profit interest acquired in 2006 for $500. This was fully amortized during the quarterly period ended April 30, 2008. Depreciation and amortization also includes deferred financing costs resulting from the credit arrangements entered into with Standard Bank Plc. This accounted for approximately $239 and $272 of depreciation and amortization expense during the three months ended October 31, 2008 and 2007, respectively.

General and Administration Expense

General and administrative expenses during the three months ended October 31, 2008 were approximately $1,364, an increase of approximately $570 or 72% from the three months ended October 31, 2007. The increase in general and administrative expenses resulted primarily from: 1) higher salaries and wages due to the hiring of additional finance and administrative personnel, 2) the effect of compensation increases to executives enacted in the prior year to levels more commensurate with industry rates, 3) higher stock compensation expense resulting from the vesting of certain stock options and restricted stock grants issued to officers, directors and employees in the prior year, and 4) higher legal fees related to the amending of our credit arrangements. The above mentioned increases in compensation, as well as the stock option and restricted stock awards were granted based upon recommendations from an independent report on executive compensation in the prior year. 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 our company, and to encourage employees to remain in our employ.

Exploration Expense

Exploration expense during the three months ended October 31, 2008 and 2007 was approximately $490 and $135, respectively, or an increase of $355. Exploration expense for the current period included costs incurred from a 10 hole deep core drilling campaign at our El Chanate mine totaling 2,500 meters which targeted the southern extremity of the main pit. This data is currently being compiled and analyzed. Once complete, it will be combined with results from a previous drilling campaign initiated in December 2007 which consisted of 26 reverse circulation holes amounting to 4,912 meters. These drill holes were mainly positioned to test the outer limits of the currently known ore zones within the main pit. All data will be combined with the intention of increasing proven and probable reserves. Exploration costs also included on-going exploration and geochemical work being conducted on our leased concessions located northwest of Saric, Sonora.

Equity Based Compensation

Equity based compensation during the three months ended October 31, 2008 was approximately $14 as compared to $58 in costs for the same period a year earlier. These costs primarily represent the equity compensation expense from the issuance and vesting of stock options and restricted stock grants for professional services provided by 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 October 31, 2008 and 2007, was approximately $304 and $358, 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 $200 for the three months ended October 31, 2008 compared to approximately $281 for the same period a year earlier. This decrease was mainly due to lower interest charges incurred during the current period related to our credit arrangements with Standard Bank. As of October 31, 2008, there was $11,375 outstanding on our term note.

Changes in Foreign Exchange Rates

During the three months ended October 31, 2008, we recorded equity adjustments
from foreign currency translations of approximately $2,192. These translation
adjustments are related to changes in the rates of exchange between the Mexican
Peso and the U.S. 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
                                            Months ended           Months ended
                                          October 31, 2008       October 31, 2007

   Revenues                                           9,175                  6,526
   Net Income (loss)                                  1,936                  1,747
   Basic net income (loss) per share                   0.01                   0.01
   Diluted net income (loss) per share                 0.01                   0.01
   Gold ounces sold                                  11,413                  9,194
   Average price received                $              805     $              710
   Cash cost per ounce sold              $              270     $              239
   Total cost per ounce sold             $              310     $              311

Liquidity and Capital Resources

Operating activities

Cash provided by operating activities during the three months ended October 31, 2008 was $3,561 as compared to Cash provided by operating activities of $415 during the three months ended October 31, 2007. The 2007 results were negatively impacted by an increase in gold sales receivable and additions to in-process inventory.

Investing Activities

Cash used in investing activities during the three months ended October 31, 2008, amounted to approximately $2,027, primarily from the acquisition of mobile equipment, conveyors and ADR plant equipment, mainly the carbon regeneration kiln. Cash used in investing activities for the same period a year ago was approximately $889 which represented mainly conveyors and original ADR plant equipment for the El Chanate mine.

Financing Activities

Cash used in financing activities during the three months ended October 31, 2008 amounted to approximately $1,126, primarily from the repayment of the note payable in the amount of $1,125. Cash provided by financing activities for the same period a year ago was approximately $2,085 which mostly was comprised of proceeds received of approximately $2,076 from the issuance of common stock upon the exercising of 6,070,500 warrants.

Term loan and Revolving Credit Facility

In September 2008, we closed an Amended And Restated Credit Agreement (the "Credit Agreement") involving our wholly-owned Mexican subsidiaries MSR and Oro, as borrowers ("Borrowers"), us, as guarantor, and Standard Bank PLC ("Standard Bank"), as the lender. The Credit Agreement amends and restates the prior credit agreement between the parties dated August 15, 2006 (the "Original Agreement"). Under the Original Agreement, MSR and Oro borrowed money in an aggregate principal amount of up to $12,500(the "Term Loan") for the purpose of constructing, developing and operating the El Chanate gold mining project in Sonora State, Mexico. We guaranteed the repayment of the Term Loan and the performance of the obligations under the Original Agreement. As of October 31, 2008, the outstanding amount on the term note was $11,375 and accrued interest on this facility was approximately $59.

The Credit Agreement also established a new senior secured revolving credit facility that permits the Borrowers to borrow up to $5,000 during the one year period after the closing of the Credit Agreement. The Borrowers may request a borrowing of the Revolving Commitment from time to time, provided that the Borrowers are not entitled to request a borrowing more than once in any calendar month (each borrowing a "Revolving Loan"). Repayment of the Revolving Loans will be secured and guaranteed in the same manner as the Term Loan. Term Loan principal shall be repaid quarterly commencing on September 30, 2008 and consisting of four payments in the amount of $1,125, followed by eight payments in the amount of $900 and two final payments in the amount of $400. There is no prepayment fee. There was no amount outstanding on the revolving credit facility as of October 31, 2008. Principal under the Term Loan and the Revolving Loans shall bear interest at a rate per annum equal to the LIBO Rate, as defined in the Credit Agreement, for the applicable Interest Period plus the Applicable Margin. An Interest Period can be one, two, three or six months, at the option of the Borrowers. The Applicable Margin for the Term Loan and the Revolving Loans is 2.5% per annum and 2.0% per annum, respectively. The Borrowers are required to pay a commitment fee in respect of the Revolving Commitment at the rate of 1.5% per annum on the average daily unused portion of the Revolving Commitment. Pursuant to the terms of the Original Credit Agreement, Standard Bank exercised significant control over the operating accounts of MSR located in Mexico and in the United States. Standard Bank's control over the accounts has been lifted significantly under the terms of the Credit Agreement, giving the Borrowers authority to exercise primary day-to-day control over the accounts. However, the accounts remain subject to an account pledge agreement between MSR and Standard Bank.

The Loan is secured by all of the tangible and intangible assets and property owned by MSR and Oro. As additional collateral for the Loan, the Company, together with its subsidiary, Leadville Mining & Milling Holding Corporation, pledged all of its ownership interest in MSR and Oro.

Debt Covenants

Our Credit Facility with Standard Bank requires us, among other obligations, to meet certain financial covenants including (i) a ratio of current assets to current liabilities at all times greater than or equal to 1.20:1.00, (ii) a quarterly minimum tangible net worth at all times of at least $15,000, and (iii) a quarterly average minimum liquidity of $500. In addition, the Credit Facility restricts, among other things, our ability to incur additional debt, create liens on our property, dispose of any assets, merge with other companies, enter into hedge agreements, organize or invest in subsidiaries or make any investments above a certain dollar limit. A failure to comply with the restrictions contained in the Credit Facility could lead to an event of default thereunder which could result in an acceleration of such indebtedness.

In connection with the amending of our credit agreements in September 2008, MSR, as a condition precedent to closing, obtained a six month waiver letter from the Lender of any default or event of default as a result of not being in compliance with regulations of Mexican federal law with regard to certain filing and environmental bonding issues in connection with the operation of mining the El Chanate concessions as well as certain insurance requirements. MSR has not yet complied with these regulations due to the absence of professionals in the area qualified to conduct studies to facilitate compliance. MSR believes that the Mexican government is aware of these barriers to compliance and that it has not enforced the Requirements against MSR or other mining companies in Sonora. MSR has agreed to make a commercially reasonable effort to come into compliance with these requirements. See also "Environmental and Permitting Issues" section below. We believe we have met the insurance requirements required by the Lender and will be compliant with the other aforementioned issues by the end of this fiscal quarter.

As of October 31, 2008, except for the aforementioned waiver, we and our related entities were in compliance with all debt covenants and default provisions.

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 have received the required Mexican government permits and extensions for construction, mining and processing the El Chanate ores. Once we revise our new mine plan based on the 2007 Report, we will work to extend the permits for mining and processing for the new life of mine. See also "Debt Covenants" above.

We received the renewable explosive permit from the government that expires on December 31, 2008 and is renewable annually.

We do include in all our internal revenue and cost projections a certain amount . . .