In a June 22 research note, CIBC reported its equity research analysts lowered their price forecasts on gold and silver but remain bullish on both metals.
As for the gold price, they decreased their forecast to $1,925 per ounce ($1,925/oz) from $2,100 "to reflect the softer performance year to date" but expect it to strengthen this year and peak in 2022, they indicated.
"Our outlook remains bullish as we continue to see pressure on real rates on the back of inflationary pressures, particularly into the back half of 2021, as well as increased safe haven demand," the analysts wrote.
Similarly, the analysts trimmed their silver price projection to $28/oz from $29 but kept their longer term, 2022 price forecast of $32/oz and outlook through 2025. They expect the gold-silver ratio to remain where it is, under 70:1.
"Silver continues to outperform gold, and we expect that trend could continue in the near term," the analysts wrote.
They highlighted that while they decreased their price target of the companies they cover, to reflect their revised metals prices, they still expect the sector to generate attractive returns and robust free cash flow, with producers and royalty companies leading the way.
The analysts expect 2021 free cash flow yields equivalent to or higher than the forecast yield of the S&P TSX or S&P 500, even at spot prices of $1,784 per ounce, they noted. For the sector as a whole, they estimate an 8% free cash flow yield, using a market cap-weighted average. For junior producers, they project 13%, for senior and intermediate producers 7%, for silver producers 5% and for royalty companies 4%.
Despite inflation, they do not expect a repeat of one trend they saw in the last cycle, decreasing margins among the senior miners.
Rather, they wrote, "Many of these same companies have committed to returning capital to shareholders, have been increasing payouts with higher gold prices and can support continued capital return, even with transitory dips in the gold price."
The analysts indicated they currently favor larger cap, more diversified producers given the current environment. They base this on their belief these stocks will be the first to benefit from an influx of new investors merely looking for gold exposure. Then as stock prices move up, a second wave of investors will enter, looking for more value-driven, leveraged stocks.
[NLINSERT]Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
