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Investors are turning to the miners as gold, silver prices move higher – CIBC

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(Kitco News) - Interest is once again returning to the precious metals mining sector as companies focus on giving back to investors in an environment that will continue to see higher gold prices, according to the latest research from CIBC.

In a report Thursday, the Canadian bank officially raised its gold forecast, looking for prices to average the year around $1,725, up from the previous forecast of $1,600. The market analysts also said that they see gold prices averaging around $1,800 an ounce in 2021.

We believe that gold and silver are heading higher as history seems to repeat itself, with the current crisis following the 2008 playbook as highlighted by a period of Helicopter Money,” the analysts said.

Even though the bank remains bullish on silver, it reduced this year’s price forecast to an average of around $18 an ounce, down from its previous estimate of $19. For 2021, the analysts see silver prices averaging $19, unchanged from the previous forecast.

The analysts added that higher gold and silver prices are making mining companies too attractive to ignore.”

The comments come as the mining sector has seen capital flow back into the sector ahead of first-quarter earnings. The VanEck Vectors Gold Miners ETF (NYSE: GDX), that tracks senior precious metals producers, is ending the week at its highest level in seven years. GDX last traded at 33.69, up 12% on the week.

CIBC warned investors that first quarter earnings are expected to be messy as the COVID-19 ground the global economy to a halt. Since mid-March many mining companies have either had to halt production because of government orders to close non-essential businesses or reduce capacity to meet social-distancing orders.

But the analysts said instead of looking at COVID-19 complications, investors should pay attention to free-cash-flow numbers and balance sheet health.

We believe that investors focus on fiscal discipline and a return of capital is here to stay, at least for the near term, with investors keeping a close eye on free cash flow profiles,” CIBC said.

Looking at raw commodity prices, the analysts noted that gold is about $100 higher than from the fourth-quarter of 2019, which proved to be a stellar quarter for the sector.

At the beginning of the pandemic, many investors were confused by the significant share price weakness in the precious metals sector, which we attribute to deleveraging by shorter-term investors,” the analysts said. With this flushing out of weaker positions largely behind us, a more bullish outlook on gold, and fairly robust balance sheets, the market is shifting from aversion to operators and 2020 COVID-19 production curtailments, to seeking more leveraged exposure to the commodity via equities.”

The bank said that its top picks in the mining sector include Agnico Eagle, Alamos Gold, B2Gold, Barrick Gold, Franco-Nevada, Kirkland Lake Gold, Newmont, Osisko Mining, Pan American Silver, SSR Mining, and Wheaton Precious Metals.

While several of these equities posted significant share price gains over the past year, we believe there is still room to move higher on the back of improving free cash flow yields, an increasing focus on return of capital to shareholders, improving quant scores, and company-specific catalysts,” the analysts said.

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