Workers are seen at Yamana's Minera Florida mine in Chile.VICTOR RUIZ CABALLERO
Gold producer stocks are cheap today and should be favoured over the precious metal itself, say analysts at CIBC World Markets.
While the price of bullion has risen steadily to hit a series of new highs, gold stocks themselves have been largely left out of the excitement.
CIBC analyst Barry Cooper says the gap is going to start closing and the metal itself now carries more risk than well-positioned stocks.
"The pendulum has swung in favour of equities instead of bullion," he wrote in a report.
He and other analysts at the firm cite several factors that they say make the stocks a good buy.
First, cash flow multiples are near a historical low. Second, as a group, gold stocks are trading close to the same net asset value multiples as shares of base metal producers. This situation has never happened in the past, they say. "While some may argue differently, we believe gold deserves special premiums because of its monetary affiliations," Mr. Cooper wrote.
Third, gold producers carry operational risk that bullion itself obviously doesn't. In past cycles, that operational risk started to get discounted when the market risk of bullion itself got high. "We are approaching these levels," he said.
The best performing gold stocks will be smaller-cap companies with significant growth potential. Producers that lack an ability to increase production in the near term will be shunned, Mr. Cooper said.
CIBC also published estimates for the price of the precious metal through 2013.
"All major currencies in the world are fighting to fund past extravagances. As a result, we expect that gold will continue its graduated climb and we are introducing a 2013 gold price of $2,200/oz. along with increasing gold prices for 2011 and 2012 to $1,625/oz. and $2,000/oz., respectively," Mr. Cooper wrote.