TD: Gold equities are oversoldGold equities are oversold, TD says
Whilegold prices have had a tough time lately, they continue to dramaticallyoutperform the gold equities. The stocks have been in a dreadfultailspin since July, and are showing almost no signs of life.
Partof this is nothing new — the equities have almost always underperformedthe gold price in recent years. But as TD Newcrest analyst Greg Barnespoints out, they now trade at levels not seen since August 2007, whenthe price of gold was in the mid-US$600s per ounce.
"Effectively,the entire late 2007/early 2008 rally in gold stocks has been erased,"Mr. Barnes wrote in a note to clients. He attributed it to a fewlogical factors: the recent correction in prices, rising operatingcosts, and lowered production guidance from several of the large-capcompanies.
His view is that the equities are currently factoringin gold prices of between US$600 and US$700 an ounce. Given that goldcurrently trades above US$800 an ounce, he figures they are oversold.
"Whileit is difficult to predict the short-term direction of the gold pricein the context of this market, for gold exposure we would recommendowning large-cap gold equities with low costs and production growth,"he wrote. He singled out Goldcorp Inc. and Yamana Gold Inc. as toppicks.
Peter Koven
I would add ELD to the list.