Gold Valuations Are at Multi-Year Lows - Canaccord Adams Analyst

Since seasonal demand for gold is typically at its high this time of year and the unprecedented market turmoil caused by the credit crisis rolls on, many are disappointed with the price of gold.

Canaccord Adams analyst Steven Butler said in a note to clients:

Credit risk has certainly worsened, but the U.S. dollar has been stronger and inflation expectations have switched to deflation given the credit seize and recessionary environment.

As a result, he reduced his peak gold scenario for the purpose of setting equity price targets from $1,150 per ounce to $950. Silver, which Mr. Bulter noted is seeing recessionary-type prices, moves from $22 per ounce to $14.

He noted that valuations in the gold sector, like most equity classes, are at multi-year lows and have diverged from bullion itself since late July. As a result of target price reductions, Canaccord’s average implied return is 45%.

Mr. Bulter downgraded Agnico-Eagle Mines Ltd. (AEM) and Pan American Silver Corp. (PAAS) to “hold” from “buy,” while moving Randgold Resources Ltd. (GOLD) to “buy” from “hold” and Alamos Gold Inc. (AGIGF.PK) to “speculative buy” from “hold.”