BMO Sees $1,175 Gold In 2017, ‘Constructive’ On Shares But Trims TargetsBy Allen Sykora of Kitco News
Monday December 19, 2016 10:17
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(Kitco News) - BMO Capital Markets has trimmed price targets for gold, silver and equities in the sector for 2017, although analysts still describe themselves as generally “constructive” on shares of mining companies.
A report Monday listed a 2017 gold-price forecast of $1,175 an ounce and a silver outlook of $17. The bank’s previous forecasts were $1,413 and $23.63, respectively. As of early New York trade, spot gold was around $1,140 and silver was just over $16 an ounce.
Analysts said they do see a risk of an upside move given the bank view that that markets are already pricing in the impact of three expected U.S. rate hikes in 2017. Rate-hike expectations have boosted U.S. Treasury yields and the U.S. dollar in recent weeks, pressuring gold.
“In our view, global political uncertainty combined with the fragility of economic recovery within Europe and continued quantitative easing continue to be supportive of precious metals when the markets refocus on these systemic risks,” BMO said.
Analysts described themselves as “constructive” on shares of precious-metals producers due to “improved sector fundamentals and reasonable valuation,” despite reduced outlooks for gold and silver prices. Nevertheless, BMO said it is lowering share target prices by 23% on average for the producers covered by bank analysts. The most significant changes are among the large producers, where target prices were revised down by an average of 30%.
“Our outlook for the precious-metal equities can best be described in Dickens-like fashion as a ‘Tale of
Two Themes,’” BMO said. “On one hand, the downgrade of our gold and silver outlook for 2017 is a clear message to investors that we believe a key element of an investment thesis of the precious-metal sector is likely to be absent through most of 2017. Given strong sector fundamentals, valuations for the gold and silver companies under coverage remain reasonable, in our view, even accounting for our more conservative outlook for gold and silver prices in 2017.
“That said, an investment case for gold and silver can be supported by continued global macroeconomic
uncertainty and related volatility combined with sector fundamentals and relative valuation.”
The shares of precious-metals equities “have come a long way since the dark days of 2013” when
gold and silver stocks were hurt by bloated costs and peak debt levels fueled by “ill-timed” growth strategies, BMO said.
“Even after mark-to-market adjusting our gold and silver prices, and adjusting our gold and silver prices for 2017, our forecast presents a relatively constructive outlook for the sector that in aggregate should continue to generate free cash flow (3.0% free cash flow yield in 2017) and positions to withstand lower prices, as suggested by free cash flow breakeven prices for the next three years of $960/oz gold and $9.29/oz silver, on average, including growth capex.”
BMO’s preferred precious-metals equities, in alphabetical order, are Alamos Gold Inc., Belo Sun Mining Corp., B2Gold Corp., Continental Gold, Detour Gold Corp., Integra Gold Corp., Newmont Mining Corp., Osisko Mining, Royal Gold Inc., SEMAFO Inc. and Silver Standard Resources Inc.
BMO projects $1,000 platinum and $750 palladium for 2017, compared to $1,100 and $725 previously. These metals were around $923 and $680 early Monday.
Meanwhile, analysts say they are upbeat on the commodities complex as a whole.
“We believe most commodities are moving up the recovery curve,” BMO said. “Certainly, a few may have overshot in 2016, so we expect some prices to fade from spot, but the overly bearish sentiment that plagued the entire commodity complex in late 2015 and early 2016 is behind us.”
BMO’s preferred commodities include zinc, U.S. steel, thermal coal and uranium.