Gold Corp RecommendedANGELA BARNES - Globe and Mail
Tuesday, September 19, 2006
TORONTO — Gold prices, which have dropped rapidly over the last week or so, are likely to decline further in the near term, given the intensity of the selling, but a “re-entry point is fast approaching,” according to UBS Securities Canada Inc.
The price dropped from a close of $638.30 (U.S.) an ounce on Sept. 5 to $575.25 last Thursday. It was at $586 in mid-morning trading Tuesday. Analyst Tony Lesiak said in a report “we think that gold is now oversold and that a bounce will occur, but further short-term lows look very likely; our traders think that there is little standing in the way of the year's low of $543” an ounce.
He said the near-term prospects for gold rest largely on the performance of oil and the U.S. dollar and the abatement of selling by central banks. “We believe central bank selling will slow after Sept. 26,” he said. That will mark the end of year two of the current gold sales agreement. The agreement runs from 2004 to 2009.
UBS is bullish on gold longer term, as indicated by its forecast of an average spot gold price of $750 in 2007. It is also upbeat about the outlook for oil, expecting that the West Texas intermediate price will average $69 in 2007, which is about 8 per cent higher than it was yesterday. The prices of oil and gold have had a varying degree of correlation over time.
Mr. Lesiak also said that gold stocks appear oversold relative to the slide in gold prices. “Generally, stocks which have seen a greater return on the upswing have seen a greater drop in price since the recent peak 10 days ago,” which is not surprising, he said. Investors are selling their winners more aggressively regardless of company fundamentals.
“An undifferentiated sell-off of this nature usually creates buying opportunities, particularly with the higher quality, more liquid names,” he said. Agnico-Eagle Mines Ltd., which was the biggest winner on the upside of the last three months, gaining 51 per cent, has also fallen the most, losing 25 per cent from its recent peak. “While some observers have suggested weakening zinc fundamentals and potential operating issues at LaRonde were to blame, we believe Agnico-Eagle has been a victim of its own success,” he said.
He recommends Agnico-Eagle among the mid-tier golds and Goldcorp Inc. among the senior producers over the next 12 months.