Scotia Capital has dropped its price targets for a basket of silver companies, reflecting it more conservative view on the outlook for precious metals, and a change in the historical trading relationship between gold and silver.
“We believe positive sentiment toward the U.S. economy and corresponding strengthening of the U.S. dollar will maintain downward pressure on near-term gold prices,’’ writes Scotia analyst Trevor Turnbull in a research report.
Scotia expects the price of gold to average US$1,300 in 2015, marking a 7% reduction for earlier forecasts.
The investment firm expects the price of silver to average US$19 an ounce in 2015, a 16% reduction compared to the earlier estimate of US$22.50.
The revised forecast is based on a 68:1 gold:silver ratio, which is a significant increase in the average 60:1 ratio seen since September 2008.
“The 68:1 ratio reflects our belief that the more recent trading relationship between gold and silver (exceeding 70:1 in some cases) may continue,’’ Turnbull said.
The impact on stock price forecasts for seven silver companies in Scotia’s coverage universe will be as follows:
The target for
Coeur Mining Inc. (
NYSE: CDE,
Stock Forum) is reduced by 34% to $4.60 from $7.
First Majestic Silver Corp. (
TSX: T.FR,
Stock Forum) is cut to $10 from $13, a reduction of 23%.
The new target for
Fortuna Silver Mines Inc. (
TSX: T.FVI,
Stock Forum) is $4.95, down 6% from $5.25.
Scotia has left its target for
Hecla Mining Co. (
NYSE: HL,
Stock Forum) unchanged at $3.
The new target for
Pan American Silver Corp. (
TSX: T.PAA,
Stock Forum) is $11.60, down 21% from $14.75.
Silver Standard Resources Inc. (
TSX: T.SSO,
Stock Forum) has been cut to $6.25, a 28% reduction from $8.65.
Silver Wheaton Corp. (
TSX: T.SLW,
Stock Forum) is down 8% to $27.50 from $30.
Still, Turnbull said he sees significant upside to Scotia’s silver price forecast if silver prices’ correlation to gold and copper prices revert back to historical levels.