It may be a little early to point to seasonal trends for gold’s recent rally that came after a 15% pullback since March’s peak, but there are several factors behind the positive swing in speculative investor demand, Scotia Capital said in a report. These include strong fall trends for bullion beginning in September, gold’s appeal as an inflation hedge given elevated oil prices, forecasts for higher interest rates from central banks, troubles for global financial companies and the negative impact this has on the U.S. dollar, and finally the recent rebound for gold ETF holdings and increase in the net speculative position.
While the firm believes gold prices will remain volatile, it expects the current uptrend will continue into 2009 and has upgraded its forecasts accordingly. Scotia has increased its 10-year average gold price by 13.6% to $844 an ounce from $742, with its long term forecast climbing 12.5% to $675 from $600. It has also boosted its 10-year average silver price by 11.6% to $15.36 per ounce, while its long-term target remains at $12.
These changes have produced average price target increases of 8% for underlying equities, the largest being for Gammon Gold Inc. (GRS), whose jumped 41% to C$12 per share from C$8.50.
Among the other names seeing revisions were Agnico-Eagle Mines Ltd. (NYSE:AEM), whose price target climbs to C$85 from C$7. It was noted for having the lowest exposure to rising oil prices in Scotia’s coverage universe.
Barrick Gold Corp.'s (NYSE:ABX) target climbed by C$10 to C$68 per share, with its large variety of mines across the globe helping to insulate it from cost adjustments, Scotia said.
However, the picture is not so rosy for every miner. Scotia recently downgraded Pan American SIlver Corp. (NASDAQ:PAAS) to “sector underperform” on expectations that its second quarter earnings will take a bigger-than-expected hit from lower zinc prices, a miner strike in Peru and higher costs at its mines.