Global uncertainty means the 'dawn of a new bull market for gold', reckon analysts at Roth Capital Partners, which is positive for investors in precious metals companies.
"In our view, uncertainty surrounding the global economy, the trade war with China, and Federal Reserve interest rate decisions has caused a flight to safety pushing gold and silver to six-year highs," said Roth analyst Joe Reagor in a comprehensive note.
"Further, we expect uncertainty to continue throughout 2020 leading up to the Presidential election and believe this backdrop creates a conducive environment for the rise in precious metals to continue," he said.
This year has seen precious metals prices rise to six-year highs. For gold, Roth has raised its fourth quarter 2019 estimate to US$1,550 from US$1,325 per ounce, and for 2020, its estimate goes to US$1,638 per ounce.
For silver, the fourth quarter 2019 estimate rises to US$19.38 an ounce from US$16.56, and for 2020 Roth sees US$23.48 per ounce, from US$20.00.
Notably, Reagor highlights that in the past seven years at least, gold and the US dollar have traded inversely, but that trend has broken in 2019.
"We view this as an indication that this time may be different and that the recent increase in precious metals prices has staying power as the macroeconomic backdrop is driving gold’s recent rise rather than weakness in the U.S. Dollar."
After running its sensitivity analysis over the companies it covers, among Roth's top picks for catalyst-drivers include Auryn Resources Inc (TSE:AUG) (NYSE:AUG) and New Pacific Metals Corp (CVE:NUAG) (OTCMKTS:NUPMF).
Among its top defensive ideas are SilverCorp Metals Inc (TSE:SVM) (NYSEAMERICAN:SVM).
The latter, Roth rates as a 'Buy' with an upgraded target price to US$5.25 from US$4.50 (current price: US$4.31) on the back of precious metals price rises.
SilverCorp is the primary silver producer in China.
"Our analysis shows that SVM has moderate leverage to silver prices and minimal leverage to the gold price. This is in line with our expectations as the company has a strong balance, high-grade assets, and significant base metals exposure," said Roth.
Meanwhile, Canada and Peru-focused explorer Auryn Resources has a 'Buy' rating repeated and a C$3.25 price target (current price: C$1.69).
The firm should benefit from rising precious metals, but the real catalyst is the potential impact of initial drill results from the Sombrero project in Peru, which are expected next year, said Roth. The research group believes the project could be a significant copper and gold discovery.
New Pacific Metals, whose main project is the Silver Sand silver and base metals property in Bolivia, is rated 'Buy' by Roth, which puts a target of C$4.25 on the shares (current price: C$2.93).
As with Auryn, Roth reckons the group should benefit from a rising precious metals price environment.
"However, we believe drill results and an initial resource estimate will provide catalysts that should overshadow any impact of a rising precious metals price environment. Additionally, we believe the company will release an initial resource estimate by the end of 2019," it said.
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