RE: quoted market value 8bMerrill Lynch & Co. raised its forecast for gold prices Friday, citing a further expected drop in the U.S. dollar, and lowered its recommendations on Barrick Gold Corp., Agnico-Eagle Mines Ltd. and Glamis Gold Ltd.
The brokerage raised its 2006 gold price target by 3.5 per cent to $440 an ounce (U.S.) and its 2007 target by 13.3 per cent to $425 an ounce. It also raised its long-term forecast from $375 an ounce to $400 an ounce.
Gold rose to a 17-and-a-half year high of $479 on Thursday and is up 6.6 per cent so far this year. At last check, futures for December delivery dipped $3.90 to $466.40 an ounce on the New York Mercantile Exchange.
The rally in gold prices have lifted the S&P/TSX composite's gold subindex by 8 per cent in the last month.
Merrill Lynch's Canadian gold analyst Mike Jalonen and U.S. analyst Dan Roling attributed the higher gold targets to positive supply-demand fundamentals in the bullion market and the potential for inflationary pressures in the U.S. They also pointed to Merrill's forecast for a weaker U.S. dollar versus the euro, which it believes will appreciate to $1.38 (U.S.) by the first-quarter of 2006.
The euro was trading at $1.21 Friday.
Gold prices have climbed in recent months as record oil prices sparked concern about inflation and as investors bought the precious metal as a safe haven amid economic uncertainty. A lower U.S. dollar also increases demand for gold because it makes bullion more affordable in other currencies.
Merrill's higher bullion targets boosted per share earnings and cash flow per share forecasts for all of the North American gold producers it covers.
In the case of Barrick, Agnico-Eagle and Glamis, updated valuations based on the higher gold prices showed the stocks have already met their price targets, Merrill said. It lowered its rating on all three companies to “neutral” from “buy.”
The higher gold targets also shifted Merrill's price objectives on a handful of Canadian gold companies. It raised Placer Dome Inc.'s stock target to $21 a share (Canadian) from $19 a share, Iamgold Corp. to $9.50 a share from $8.50 a share, and Eldorado Gold Corp. to $4.25 a share from $3.80 a share.
Although gold prices and gold stocks have been rising, Merrill said its analysis suggests that North American gold equities are on the pricey side. Average price to net asset value multiples among gold companies are trading above the mid-point of their twelve-year average, the report said.
“In 15 of the past 17 years, gold and gold equities have experienced early summer to early fall rallies,” Merrill said, averaging gains of 9.5 per cent and 24.5 per cent, respectively. Since July 19, gold and the Philadelphia Gold & Silver Index have climbed 11.2 per cent and 23.5 per cent, respectively.
“In seven of the past eight years, this seasonal rally has peaked out in late September/early October,” Merrill noted.
In a separate note, UBS Securities Canada Inc. analyst Brian MacArthur downgraded Barrick to “neutral 2” from “buy 2,” noting that the stock has shot up 18 per cent in the past two months and 34 per cent in past four months.
“Despite UBS's positive longer-term view on the gold price and Barrick's growth, given the recent share price performance we now rate the shares Neutral 2,” he said.