CIBC raises gold price forecast; shares top stock picks

CIBC is increasing its gold price forecast to US$1,725 per oz. in 2020 and US$1,800 per oz. in 2021, up from its previous estimates of US$1,600 per oz. for both years.

The bank is also boosting its 2022 forecast to US$1,600 per oz. from US$1,500 per oz., but is leaving its long-term forecast for 2023 unchanged at US$1,400 per oz.

“If the 2008-2011 Global Financial Crisis is any indicator, the outlook for gold in a QE [quantitative easing] environment is very positive,” CIBC Equity Research said in a report today. “Real rates will likely remain under pressure for a few years and currency devaluation will become a growing concern.”

At the same time, the bank’s research team is lowering its near-term forecast for silver, “as liquidity pressures and weaker industrial demand have resulted in a wider gold-silver ratio, which could remain high in 2020 compared to historical averages.”

CIBC is trimming its silver price forecast for 2020 to US$18 per oz., down from its earlier forecast of US$19 per oz., but is keeping its targets unchanged for 2021 (US$19 per oz.), 2022 (US$18.50 per oz.) and longer term (US$16.50 per oz.) in 2023.

The bank also predicts more exposure to gold equities that can deliver attractive free cash flow yields.

“At the beginning of the pandemic, many investors were confused by the significant share price weakness in the precious metals sector, which we attribute to deleveraging by shorter-term investors,” the report stated. “With this flushing out of weaker positions largely behind us, a more bullish outlook on gold, and fairly robust balance sheets, the market is shifting from aversion to operators and 2020 COVID-19 production curtailments, to seeking more leverage exposure to the commodity via equities.”

Its top picks are: Agnico Eagle Mines (TSX: AEM; NYSE: AEM); Alamos Gold (TSX: AGI; NYSE: AGI); B2 Gold (TSX: BTO; NYSE-AM: BTG); Barrick Gold (TSX: ABX; NYSE: GOLD) Kirkland Lake Gold (TSX: KL; NYSE: KL); Newmont (TSX: NGT; NYSE: NEM); Osisko Mining (TSX: OSK); Pan American Silver (TSX: PAAS; NYSE: PAAS); SSR Mining (TSX: SSRM; NASDAQ: SSRM); Franco Nevada (TSX: FNV; NYSE: FNX) and Wheaton Precious Metals (TSX: WPM; NYSE: WPM).

“While several of these equities posted significant share price gains over the past year, we believe there is still room to move higher on the back of improving free cash flow yields, an increasing focus on return of capital to shareholders, improving quant scores, and company-specific catalysts.”

CIBC has revised its 12-18 month target prices for some of its top picks as follows: Agnico Eagle US$74 per share (up from previous US$63); Alamos Gold C$11.75 per share (up from C$10.50); B2Gold US$6.30 per share (from US$4.75); Barrick US$33 per share (up from US$24); Franco-Nevada C$195 per share (change from C$162); Kirkland Lake Gold C$69 per share (from C$62); Newmont US$77 (from US$57); and Wheaton Precious Metals US$42 (from US$36).