Gold, Silver, Platinum, Palladium - Price And Stock Forecasts/Recommendations For 2018

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Includes: ABX, AEM, BTC-USD, COIN, FCX, FNV, GBTC, GFI, GG, GLD, GOLD, HL, NEM, RGLD, SAND, SBGL, WPM
by: Lawrence Williams

Summary

Precious metals stock picks made a year ago were mixed, but more than half beat the record growth in the S&P 500.

Most of the new 2018 precious metals stock picks are the same as those for 2017, but there are some deletions and additions.

Price forecasts for gold, silver, platinum and palladium, the dollar index included.

Yes, I’m having another go at one year predictions for precious metals prices and stock picks for the year ahead after a reasonably successful 2017, where some of my stock predictions were decently positive, but came nowhere near my price targets. In mitigation, gold, and particularly silver, prices did not perform as expected, yet just over half of my chosen stocks did still manage to outperform the S&P 500, despite the latter breaking record after record through the year.

To look at my 2017 predictions and comments at the time, click on 2017 Predictions - Gold, Silver, PGMs, The Dollar, Markets and Gepolitics. I hope to do better this year, but for the record, here’s a tabulation of my last year’s stock picks and how they have actually performed over the year:

TABLE 1: 2017 Recommended Precious Metals Stocks – 2017 performance

Stock

Price 2nd/3rd Jan 2017

Price Christmas 2017

% Change

Barrick Gold (NYSE: ABX)

16.37

14.47

-11.6%

Newmont Mining (NYSE: NEM)

34.63

36.92

+6.6%

Goldcorp (NYSE: GG)

14.05

12.58

-10.5%

Gold Fields (NYSE: GFI)

3.23

4.05

+25.4%

Randgold Resources (NASDAQ: GOLD)

79.01

96.05

+21.6%

Freeport McMoRan (NYSE: FCX)

13.78

18.10

+31.3%

Hecla (NYSE: HL)

5.50

4.05

-26.4%

Franco-Nevada (NYSE: FNV)

60.87

78.50

+29.0%

Wheaton Precious Metals (NYSE: WPM)

19.82

22.03

+11.6%

Royal Gold (NYSE: RGLD)

64.63

86.56

+33.9%

Sandstorm Gold (NASDAQ: SAND)

4.16

5.04

+21.2%

S&P 500

2257.83

2683.34

+18.8%

Gold Price

1,157.34

1274..50

+10.1%

Silver Price

16.30

16.37

+2.3%

As you can see, a pretty mixed bag ranging from the decently positive to the distinctly negative – probably not too bad a result given lackluster metals price performances (apart from palladium), but definitely a case of ‘could do better’. However, it should also be recognised that the stocks suggested are virtually all dividend payers, so investor returns will have been a little better served than the overall price changes might suggest. Figures for the S&P 500 and the gold and silver prices have been added in for reference.

For 2018, most of our stock picks remain unchanged. They have been chosen because even with weak metals prices they won’t roll over and die, which could be the fate of some juniors in the space, and most again provide dividend income too. From last year’s listing, we’ve dropped Goldcorp which was picked as a recovery stock (it didn’t) and which seems to go from problem to problem under its current management, and Barrick Gold which looks like it's surrendering its world largest gold producer mantle to rival Newmont Mining, and may thus lose some of its ‘go-to’ investment appeal for institutional investors coming late into gold investment, in favour of the latter. Barrick is in a declining gold production path as it offloads non-core businesses, while its big Pascua Lama project seems to be staying on the back burner as it sells off production and processing plant which it seems not to need in the medium term at least. The project has already cost it billions of dollars and so far it has little or nothing to show for it than grief. Newmont, on the other hand, is still in an output expansion phase.

Of the other gold miners on our list, Randgold continues to perform positively, although had a weak Q3, but is paying a decent dividend and remains on target to meet its production. Perhaps it is seen as operating in a risky part of the world (West and Central Africa) but has proved adept at working well with local government and is seen as being particularly strong in developing sustainable work around its operations for when mining ultimately ceases. For Q3 comment refer: Randgold: Difficult Q3 But Still On Track To Meet Top End Of Guidance

Gold Fields has been among the best performers in terms of stock price gains in 2017 among the world’s top gold producers. It spun off most of its big South African mines into what is now Sibanye Stillwater a couple of years ago but retained South Deep which has enormous gold reserves but has been something of an operational nightmare, and still looks to be underperforming in terms of reaching its production targets. But the company is performing pretty well elsewhere, notably in Australia where it has strong production and a good development pipeline including its relatively recently acquired 50% stake in the extremely promising Gruyere project. It also has gold mining operations in Ghana and Peru and currently mines over 2 million ounces of gold annually at an AISC of just over $1,000 an ounce. In Q3, it reported net cash flow of $85 million. As a high-ish cost producer, it has good leverage to advances in the gold price.

Freeport-McMoRan is one of the world’s top gold miners in its own right, although primarily a copper producer. It seems to be reaching some kind of settlement over its key Grasberg operation in its somewhat uneasy relationship with the host Indonesian government, but should continue to do OK as long as a reasonably satisfactory agreement is reached, while the copper price looks to be a strong point in the medium to long term. 2017 stock price performance beat the S&P!

We’ve added in Agnico-Eagle (NYSE: AEM) as being a consistently strong player in the gold major space, suggesting good management. We also add in Sibanye Stillwater (NYSE: SBGL), South Africa’s largest gold miner, after its spinoff from Gold Fields, which has been moving into platinum and palladium in a big way. Although we are dubious about the longer term prospects for palladium in particular, we are more positive about platinum for the next couple of years (but not after that) and the company should do well too in palladium for as long as the high prices prevail. This might be one to re-assess at the mid-year when we have a better handle on how pgm prices are faring.

In silver, perhaps one should be a little dubious about Hecla (NYSE: HL) given its poor performance over the past year. It was perhaps my No. 1 pick a year ago, but ended up the worst of our stock suggestions for the year in terms of price performance, crippled by an ongoing nine-month strike over operational issues at its Lucky Friday silver mine in Idaho. However, we leave it in our listing as perhaps the most speculative of our recommendations this year as a top recovery stock on the assumption that it will settle with the unions and bring the Lucky Friday back into full production. Its other mines and its mining pipeline are looking pretty positive.

We maintain our picks in the royalty/streaming stocks - Franco-Nevada, Royal Gold and Sandstorm Gold, all of which beat the S&P 500, and Wheaton Precious Metals which has particularly strong exposure to silver (it has recently changed its name from Silver Wheaton given it has diversified its portfolio and silver is less dominant). They have an investment pattern which tends to keep them riding high among the precious metals counters.

On precious metals prices, we anticipate gold moving upwards – perhaps ending the year at around $1,450, but this may be as much a function of a further decline in the dollar index – a decline which could be exacerbated if the U.S. Fed fails to reach its 3 rate hikes target for the year. Its recent rate increases have not been unanimous decisions, and if inflation remains below target and the yield curve continues to flatten, suggesting a recession ahead, then the dissenters may be joined by other members of the FOMC when it comes to the planned rate hikes for 2018.

The big gold ETF (NYSEARCA:GLD) is very much a proxy for the gold price and perhaps easier to invest in, but we’d anticipate gold equities comfortably outperforming the ETFs in a rising gold price environment if, as we anticipate, this happens over the year ahead. As we noted above, the majority of our gold stock picks pay dividends too.

Of the other precious metals, we see silver rising to around $20 with the gold:silver ratio coming down to around the 70 mark. Platinum we see as following the gold price upwards ending the year at $1,000 plus, with most gains in the second half of the year, particularly if it starts to make inroads back into the gasoline engine autocatalyst sector. We think this is likely given the current main gasoline engine autocatalyst choice, palladium’s, higher price for now. Conversely, we see palladium holding on to its price advantage over platinum until around the mid-year, but then declining to perhaps the $900 level or below using the same reasoning! Rhodium we see as following a similar price pattern to palladium also for the same reasons given its main use is alongside palladium in the autocatalyst sector - strong for now, but possibly coming back in price in the second half of the year.

TABLE 2: Recommended Precious Metals Stocks and Price Targets for end 2018

Stock

Price December 22nd

Target Price end 2018

Agnico Eagle Mines

45.32

$55.00

Newmont Mining

36.92

$44.00

Gold Fields

4.05

$5.00

Randgold Resources

96.05

$120.00

Freeport McMoRan

18.10

$23.00

Sibanye Stillwater*

4.87

$6.00

Hecla Mining

4.05

$6.00

Franco-Nevada

78.50

$95.00

Wheaton Precious Metals

22.30

$27.00

Royal Gold

86.56

$105.00

Sandstorm Gold

5.04

$6.50

Dollar Index

93.32

90.5

Gold Price

$1,274.50

$1,425

Silver Price

$16.37

$20.50

Platinum price

$918.00

$1,105

Palladium price

$1,029.00

$875

*Probably should re-assess Sibanye Stillwater mid-year as we see palladium remaining strong in first half of year, but declining sharply in H2

Above is the table of all our precious metals stock picks for 2018 with closing prices on December 22nd – the last trading day before Christmas 2017 - and our target prices for end 2018. We’re looking at advances in most cases of around 20% over the year, but this very much depends on precious metals price performance over the year ahead.

To really make ourselves hostage to fortune, we’ve also added in our predictions for the US Dollar Index and our price forecasts for the major precious metals. Well, we can hardly do any worse than some of the hugely qualified economists and analysts out there who will all shortly be publishing their own price targets for the year ahead.

Regarding the S&P 500 and Bitcoin – we see these coming off their highs during the year, and the latter could, in our opinion, see a major crash should the bubble burst. Indeed, bitcoin came down sharply this week but, of course, could yet bounce back before the mega-plunge we predict. If these do come off their, in our view unsustainable, highs, this could be another factor helping divert investment back into precious metals which could make our stock price predictions conservative.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.