RBC analysts are becoming increasingly convinced that gold equities are ripe for buying.
These stocks have long underperformed the prices of precious metals themselves. But analysts Geoff Breen and Steuart McIntyre believe that era is drawing to a close.
The key for investors now, they contend, is to wait for a pullback over the next three to four weeks when seasonal factors tend to push the price of gold lower. Once that happens, snap them up.
"While we expect a modest seasonal correction in the gold price and gold stocks in the month, we regard this as a buying opportunity," the analysts, based in Australia, wrote in a research note. "While gold equities have underperformed gold bullion over the past several years, we believe that attractive valuations and improving operating performance could create an attractive entry point for investors," they said.
Gold has reached multi-month highs in recent sessions to near $1,800 (U.S.) an ounce, encouraged by U.S. and European central bank plans to buy bonds to stimulate the economy, which could lead to inflationary pressures. Fears surrounding the European debt crisis is also making gold an attractive haven in uncertain economic times.
RBC expects gold to trade in a range of $1,600 to $1,850 an ounce in the fourth quarter and in 2013. It kept its 2013 forecast at $1,700, but today raised its forecast for gold in 2014 to average $1,700 from $1,500. RBC also raised its long-term gold price forecast to $1,400 from $1,200.
That seasonal weakness RBC analysts note is primarily driven by two factors: a pullback in Indian demand during holidays in October and November, and expected profit taking by speculators. Net long speculative positions on the Comex division of the New York Mercantile Exchange are near all-time high levels, making the market vulnerable to a bout of profit taking, they note.
While gold equities rose in September, and in some cases even outperformed gold, they have still underperformed gold year-to-date, and many remain at or near all-time low valuations.