RBC Expects Gold Prices To Move Up

With commodity prices bucking the downward trends exhibited by global markets recently, the current long commodity cycle is proving to be dependent on supply and demand, not the global liquidity glut of recent years, says RBC Capital Markets analyst Stephen Walker.

He continues to think gold prices will move upward for the rest of the decade, despite a dip since the relatively rapid gold rally peaked in late July.

The gold bug index (HUI) has broken below its January 2007 lows, and unless it falls decisively below its 200-day average of 657.30, RBC says it is “leaning toward the interpretation” that the index’s plunge last week was just an example of what all stocks do.

Mr. Walker thinks normal seasonal strength will likely regain is footing soon. “In the near term, we expect gold and gold equities to benefit from seasonal demand and an anticipated Fed rate cutting cycle,” he told clients in a note, while forecasting that gold will average US$670 per ounce this year and US$700 in 2008.

The names he identified as having the most promising technical profiles include Barrick Gold (ABX), Agnico-Eagle Mines (AEM), European Goldfields and Anatola Minerals.

As for those that offer both improving production and costs, the upside of reserves, active exploration and strong management, Mr. Walker highlighted Goldcorp (GG), Kinross Gold (KGC), IAMGOLD (IAG), Centerra Gold, Jaguar Mining and Anatola.