Be wary of gold and gold mining stocks once interest rates start to rise.
With the Bank of Canada and U.S. Federal Reserve expected to beginning tightening this summer, analysts at RBC Dominion Securities are out this week with a report that looks at how bullion and gold stocks perform during economic cycles.
The investment dealer crunched the last nine periods of rising rates and concluded "on average, gold equities outperform prior to the hike and lag thereafter."
It's difficult, or dangerous, to focus on any one outside factor when trying to forecast bullion prices, and RBC Dominion pointed to a number of forces that will move gold, apart from monetary policy, such as central bank gold selling, heightened geopolitical risk concerns and U.S. dollar weakness.
In trying to build a larger forecast of what to expect from gold in coming months, the investment dealer's gold mining analysts said they expect "less volatility this time around with greater monetary policy transparency compared to majority of the tightening cycles."
In moving from economics to stock picking, the RBC Dominion Securities team recommended that investors "focus on high quality names such as Barrick Gold and Goldcorp that offer margin improvement and above average organic growth potential compared to their peers."
Among junior players, the investment dealer highlighted companies with "re-rating opportunities driven by significant production growth and exploration upside such as Jaguar Mining , Anatolia Minerals and Detour Gold ."