GOLD STOCKS NEWS – Gold stocks rallied on Friday, with the Market Vectors Gold Miners ETF (GDX) climbing $1.87, or 3.0%, to a new record high of $65.25 per share. The advance in gold stocks and the GDX was fueled by strength in gold futures, which surged $51.70 to $1,880.80 per ounce following the disappointing U.S. jobs report.
In doing so, the GDX finally surpassed its previous all-time high of $64.62, reached on December 7, 2010 – when gold was trading all of 24% lower near $1,430 per ounce.
Throughout this bull market in gold, the GDX has initially failed on numerous occasions to confirm new highs in the yellow metal, only to eventually hit a new record several months later.
Nonetheless, gold stocks as a group have substantially underperformed gold bullion. On a year-to-date basis, the GDX is now higher by 5.8%, compared to a 32.2% gain for the yellow metal.
In addition to the surge higher in gold prices, gold stocks received a strong endorsement from CIBC analyst Barry Cooper. In a recent report, Cooper reiterated his bullish outlook on gold stocks and his preference for the equities over the metal at the present time. Highlights from his report follow:
We conclude that there remains good potential to continue to earn capital appreciation though the investment of gold as the bull market has not shown signs of letting up.
We believe there are four factors favoring equities over bullion at current levels.
1. Cash flow multiples are almost at a historical low when compared to the late 1970s, which we believe is the most analogous period to current happenings.
2. If guidance is tightened on ownership of the GLD (gold ETF), there could be flow out of this bullion-based vehicle into gold equities in order to maintain exposure to the sector.
3. Gold stocks are almost trading at the same net asset value (NAV) multiples as base metal shares, which has never happened in the past and while some may argue differently, we believe gold deserves special premiums because of its monetary affiliations.
4. Lag effects associated with equities in past rallies suggest that the market will start to discount operational risk when the market risk of the underlying commodity is high. We are approaching these levels.
We believe the best performers will continue to be smaller-cap gold names where growth, albeit undelivered, is rewarded in the market. While we see the disconnect between value and growth as widening, gold shares without a near-term future of increased production will likely continue to be shunned
In light of his preference for small- and mid-cap gold stocks over large-caps, Cooper’s top picks in the gold stocks sector included:
Detour Gold (DGC.TSX), Osisko Mining (OSK.TSX), Kirkland Lake Gold (KGI.TSX), Franco-Nevada (FNV), CGA Mining (CGA.TSX), Alamos Gold (AGI.TSX), Belo Sun Mining (BSX.TSX), Banro Corp (BAA.TSX), and San Gold (SGR.TSX).
For those investors “where trading liquidity is a factor” – which essentially means large-cap gold stocks – Cooper’s top picks were GDX components Goldcorp (GG), IAMGOLD (IAG), and Eldorado Gold (EGO). His 12-18 month price targets on GG, IAG, and EGO are $76, $34, and $28, respectively.
CIBC has a “Sector Outperformer” rating all of the aforementioned gold stocks, as well as the large majority of gold companies that he covers.
In Friday morning trading, shares of GG, IAG, and EGO advanced 2.4%, 1.8%, and 2.0%, respectively.
