Gold Equities are Undervalued, Morgan Stanley's Cohen Says
Gold Equities are Undervalued, Morgan Stanley's Cohen Says
New York, March 8 (Bloomberg) -- Gold mining company shares are undervalued, when compared
with the price of gold, after declining during the past three months, said analyst Douglas Cohen at
Morgan Stanley Dean Witter & Co. ''During the last three months gold has done nothing and the
equities have traded downward so they are about 15 percent undervalued compared with gold
itself,'' Cohen said in an interview. ''So, there is a reasonable chance that we'll see a rally in
equities but we're not pounding the table yet.''
Gold for April delivery rose $3.20 to $292.70 an ounce on the Comex division of the New York
Mercantile Exchange. Gold futures have trading mostly within a range of $285 an ounce to $290
an ounce during the last three months.
The closely watched Philadelphia Stock Exchange Gold and Silver Index, a
capitalization-weighted index, that includes the top U.S. precious metal mining companies is ''now
about 15 percent undervalued relative to the gold price, in our view,'' Cohen said.
The index, which fell to a six-month low on Feb. 26, includes Barrick Gold Corp., Coeur D'Alene
Mines Corp. and Homestake Mining Co. The index was last that low in August when gold was
trading at a 19-year low. ''The sector has appeared this undervalued only once before during the
past six years,'' Cohen said. ''The index became about 25 percent undervalued, but then rallied
60 percent'' during September 1998. ''We still believe there will be better opportunities to play the
sector aggressively later in the year, most likely in association with an anticipated increase in
reflation fears,'' Cohen said.
Gold Price Outlook
Cohen, in a report, left unchanged the forecast for gold prices he made in January, when he
predicted gold would probably trade in a range of $280 to $300 an ounce during the first half of
1999,
During the second half of the year, the potential for an acceleration in inflation may lead gold
prices in a ''sustained rally toward $320 an ounce,'' he said.
Toronto-based Barrick Gold is Cohen's top pick among precious metals mining companies
because of what he considers to be its superior assets, balance sheet and management.
Barrick rose 13/16 to 18 7/8 today. Cohen's target price for Barrick in 1999 is $26.
NYSE/AMEX delayed 20 min. NASDAQ delayed 15 min.
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