Cut-off for a Nerve-Tester, Gold to Resume Its Uphill Climb: Canaccord Genuity

As we have stated even earlier, 2016 has proven to be an excellent year for all gold traders. Shares of most miners have tripled or at least doubled from their lows in January. However, if analysts at Canaccord Genuity Group have made a correct analysis, there is even more upside to come.

On Tuesday, July 12, 2016, analysts Tony Lesiak, Peter Bures and Rahul Paul have put a hike on their price targets for 27 precious metal stocks. The large-cap producers have now been raised with an average of 25% each. These analysts only expect prices of gold and silver to move higher, with notations of the valuations appearing stretched after this year’s run-up.

“While we aren’t changing how we value the equities we cover, we are moving to the upper end of the valuation range we have seen over the past 10 years given the potential for gold equities to benefit further from a declining cost of capital,” the analysts stated in a note.

But in the short term, Canaccord expects a pullback. Strategist Martin Roberge states, gold stocks have outperformed the broader S&P/TSX Composite Index by an amazing 71% in 2016. Roberge proposed that gold equities are holding on at a stable 71% this year.

Roberge states that gold equities will definitely take an upward watch in summer and are sure to stabilize before that. This would be mirroring their performances of 1993, when the price soared higher in the first few months, fell sharply in summer and then rose again. Investors are recommended to boost their gold stocks in summer thereby making way for meaningful correction if necessary.

“The odds favor a sustainable resource rally in 2016 and very shallow performance relapses,” Roberge wrote, citing continued pressure on U.S. bond yields as investors seek safe haven assets.

Paul, Bures and Lesiak assumed that the gold sector is currently trading at an average of 0.92 times NAV. The NAV is seen to be rising at 1.07 times representing a major re-rating of that sector. This would fall near the top end of all NAV multiples seen in the last decade. The most common belief being the premium is justified given all economic concerns, heightened geopolitical risks, strong investor demand and ultra-low rates of the Gold Stock.

NAV multiples typically have moved down with rise in gold prices, though the two have almost moved in tandem since 2014 and this trend is expected to continue. These people also pointed out that,Gold buyers will benefit as bonds decline and investors continue to let their money flow into the Gold Sector. Over time borrowing costs will fall and the market price will flash lower discount rates for this stock.

On Tuesday, the gold price target was raised at US$1461 an ounce which is almost 6.9% higher from the immediate successor US$1,366. Target in 2016 was raised by 2.4% at US$1295. In 2017, though this target is calculated to reach US$1384 with a 6.2% hike.

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