RBC predicts $750-$1 000/oz, 'significant volatility' for gold in '09
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By: Liezel Hill
Published on 5th February 2009
Updated 6 hours ago
TORONTO (miningweekly.com) - Gold prices will likely remain firm during the first three months of this year, held up by seasonal demand for physical gold and continued demand by investors looking for a safehaven, but could lose some ground in the middle of the year, before surging back again, analysts at RBC Capital markets predicted this week.
In a gold outlook report titled 'Beginning and ending 2009 with a bang...but risk is in mid-year," RBC forecasts that 2009 will prove a volatile year for the yellow metal.
The analysts maintained their average gold price forecasts of $850/oz for 2009, $875/oz for 2010, and $900/oz long-term, but expect that the metal will trade in a range between $750/oz and $1,000/oz this year.
A combination of physical and investment demand would likely keep prices in a range of between $900/oz and $950/oz in the first quarter.
On Thursday afternoon, gold was trading at around $912/oz. The metal has surged since the year began, buoyed by safe-haven buying amid a global financial crisis.
"However, by mid-year, our expectation of an extended global recession could result in significant economic pressures in the emerging market economies and we would expect gold to retreat and test $750/oz and gold equities to correct significantly," the RBC analysts predict.
"In our view, there is risk of a significant June-July period of weakness for gold demand and the potential for emerging market scrap sales in an extended global recession."
This expected destocking or sales of scrap gold could be similar to what happened in 1998 during the Asian Tiger crisis, when gold sales more than offset investment demand for gold, which led to lower gold prices.
However, if the expected mid-year correction does occur, investors would do well to use the pullback as a buying opportunity, as RBC expects that gold will return to the $1 000/oz level, as the global economy starts showing signs of recovery later this year or early in 2010.
"The extraordinary amount of fiscal and monetary stimuli is expected to result in a recovery of the global economy in 2010, and gold equities have traditionally rallied early in an economic recovery cycle."
The rebound in the gold price will also be accompanied by a corresponding recovery in gold shares, RBC predicts.
Earlier this week, brokerage UBS upgraded its ratings for five North American gold producers, including Barrick Gold, saying investor and speculative demand are boosting gold prices.
The brokerage raised its 2009 gold price target to $1 000 per ounce from its prior view of $700 per ounce.
GOLD EQUITIES
Given the strength of the gains made by gold stocks during January, with many equities trading well above historical valuation ranges, RBC suggests that there is limited upside from current prices for most gold shares.
However, the expected volatility in the gold price should create potentially attractive buying opportunities for gold equities on pullbacks into periods of weak demand, in the second and third quarter.
Characteristics that the analysts look for in gold companies include: improving production and cost profiles, gold reserve upside, active exploration programs, solid balance sheets, and strong management teams.
Among the majors, good bets would be firms like AngloGold Ashanti, Barrick Gold, Goldcorp, Newcrest Mining, and Yamana, while intermediaries such as Franco-Nevada, Iamgold, and Red Back
Mining also fit the bill.
"Heading into 2009 we maintain our view that gold and gold equities should continue to perform relatively well in the current economic environment and recommend an overweight position in investors' portfolios," the analysts comment.
Editor: Liezel Hill |
