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Raymond James Research on Gold

Raymond James Research on Gold

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Published by: richardck13 on Mar 19, 2010
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04/17/2013

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Published
 
 by
 
Raymond
 
 James
 
Ltd.,
 
a
 
Canadian
 
investment
 
dealer.
 
Please
 
see
 
end
 
of
 
INsight
 
for
 
important
 
disclosures.
 
www.raymondjames.ca
 
FEBRUARY 10, 2010
Precious Metals
Here We Go Again: Reviewing Recent Gold-USDDynamics
The
 
most
 
recent
 
rally
 
in
 
the
 
USD
 
has
 
 been
 
triggered
 
 by
 
‘rush
 
to
 
safety’
 
 buying
 
on
 
the
 
 back
 
of
 
rising
 
economic
 
concerns
 
in
 
Europe.
 
We
 
have
 
seen
 
three
 
other
 
‘safe
 
haven’
 
rallies
 
in
 
the
 
USD
 
since
 
the
 
credit
 
crisis
 
 broke
 
in
 
2007
 
that
 
saw
 
on
 
average:
 
 
DXY
 
up
 
13%
 
 
Gold
 
price
 
down
 
9%
 
 
HUI
 
Index
 
down
 
28%
 
We
 
note
 
that
 
post
 
each
 
of
 
these
 
three
 
‘safe
 
haven’
 
rallies,
 
the
 
USD
 
has
 
weakened
 
materially,
 
resulting,
 
on
 
average,
 
in
 
the
 
following
 
movements:
 
 
DXY
 
down
 
9%
 
 
Gold
 
price
 
up
 
11%
 
 
HUI
 
Index
 
up
 
37%
 
Although
 
historic
 
performance
 
cannot
 
 be
 
applied
 
as
 
a
 
forward
 
guide,
 
we
 
would
 
highlight
 
that
 
these
 
three
 
recent
 
periods
 
of
 
USD
 
strength
 
have
 
provided
 
an
 
excellent
 
entry
 
point
 
into
 
gold
 
equities,
 
noting
 
also
 
that
 
during
 
the
 
ensuing
 
rally
 
the
 
equities
 
have
 
offered
 
more
 
than
 
triple
 
the
 
upside
 
than
 
investing
 
in
 
the
 
metal
 
itself.
 
For
 
reference,
 
we
 
note
 
that
 
the
 
current
 
rally
 
in
 
the
 
USD
 
has
 
resulted
 
in:
 
 
DXY
 
up
 
8%
 
 
Gold
 
price
 
down
 
11%
 
 
HUI
 
Index
 
down
 
22%
 
In
 
this
 
report,
 
we
 
also
 
look
 
at
 
which
 
gold
 
equities
 
have
 
performed
 
the
 
 best,
 
on
 
average,
 
across
 
all
 
three
 
post
 
‘risk
 
aversion’
 
rallies.
 
Of
 
the
 
companies
 
we
 
cover
 
Aura,
 
Osisko,
 
Great
 
Basin
 
Gold
 
and
 
San
 
Gold
 
have
 
posted
 
the
 
most
 
impressive
 
returns
 
during
 
these
 
periods.
 
We
 
also
 
look
 
at
 
which
 
companies
 
have
 
suffered
 
the
 
most
 
in
 
the
 
most
 
recent
 
sell
off.
 
Of
 
the
 
companies
 
we
 
cover
 
Lake
 
Shore,
 
Golden
 
Star,
 
Aurizon
 
and
 
Yamana
 
have
 
 been
 
hit
 
the
 
hardest.
 
Based
 
on
 
our
 
fundamental
 
views,
 
our
 
top
 
picks
 
in
 
the
 
gold
 
space
 
among
 
the
 
larger
 
producers
 
are
 
Agnico
Eagle
 
and
 
Eldorado,
 
among
 
the
 
emerging
 
mid
tier
 
producers
 
are
 
San
 
Gold
 
and
 
Crocodile
 
and
 
among
 
the
 
developers
 
are
 
Anatolia
 
and
 
Detour.
 
MINING: PRECIOUS METALSBrad Humphrey
brad.humphrey@raymondjames.ca416.777.4917
Forbes Gemmell, CFA
 forbes.gemmell@raymondjames.ca416.777.4948
Afjal Mohammad (Associate)
afjal.mohammad@raymondjames.ca416.777.7084
Bart Jaworski, P.Geo
bart.jaworski@raymondjames.ca604.659.8282
David Sadowski (Associate)
david.sadowski@raymondjames.ca604.659.8255
SECTOR SUMMARY
COMPANYRATINGTICKERURPRICERETURNTARGETGold CompaniesAgnico-Eagle Mines (BH)OUTPERFORM 2=
AEM-NYSE US $54.61 39% $76.00
=Alamos Gold (FG)STRONG BUY 1=
AGI-TSX C $12.80 25% $16.00
=Anatolia Minerals (BH)OUTPERFORM 2=
ANO-TSX C $3.65 45% $5.30
=Aurizon Mines (FG)OUTPERFORM 2=
ARZ-TSX C $4.10 59% $6.50
=B2Gold (FG)R
BTO-TSX C $1.27 R R
Crocodile (FG)OUTPERFORM 2=
CRK-TSX C $1.98 72% $3.40
=Detour Gold (BH)OUTPERFORM 2=
DGC-TSX C $16.65 32% $22.00
=Eldorado Gold (BH)OUTPERFORM 2=
EGO-AMEX US $12.46 50% $18.65
=Etruscan Resources (BH)OUTPERFORM 2=
EET-TSX C $0.38 97% $0.75
=Gammon Gold (FG)MARKET PERFORM 3=
GRS-NYSE US $9.46 37% $13.00
=Golden Star (BH)OUTPERFORM 2=
GSS-AMEX US $3.04 38% $4.20
=Great Basin (BH)MARKET PERFORM 3=
GBG-AMEX US $1.65 36% $2.25
=Lakeshore Gold (BJ)OUTPERFORM 2
LSG-TSX C $3.15 33% $4.20
=Orezone (BH)OUTPERFORM 2=
ORG-TSX US $0.74 76% $1.30
=Osisko (BH)MARKET PERFORM 3=
OSK-TSX C 8.45 20% $10.10
=San Gold (FG)OUTPERFORM 2=
SGR-TSXV C $3.54 41% $5.00
=Yamana Gold (BH)OUTPERFORM 2=
AUY-NYSE US $10.41 78% $18.50
=Silver CompaniesMag Silver (BJ)STRONG BUY 1=
MAG-TSX C $5.82 63% $9.50
=Minco Silver (BH)OUTPERFORM 2=
MSV-TSX C $1.59 111% $3.35
=Pan American Silver (BH)STRONG BUY 1=
PAAS-NASDAQ US $21.50 72% $37.00
=Silver Wheaton (BH)OUTPERFORM 2=
SLW-NYSE US $14.33 50% $21.50
=Silvercorp Metals (BH)OUTPERFORM 2=
SVM-TSX C $5.42 75% $9.50
=
BJ = Bart Jaworski BH = Brad HumphreyFG = Forbes Gemmell
Closing prices as of Feb-9-10 All figures in US$, unless otherwise noted.Sources: Raymond James Ltd.,ThomsonOne, CapIQ 
 
 
RJ INsight
Page 2of 10
U.S.
 
DOLLAR
 
RALLIES
 
 
Given
 
the
 
current
 
rally
 
in
 
the
 
U.S.
 
dollar,
 
we
 
thought
 
it
 
would
 
 be
 
a
 
useful
 
exercise
 
to
 
look
 
 back
 
at
 
recent
 
periods
 
of
 
U.S.
 
dollar
 
strength.
 
As
 
highlighted
 
in
 
Exhibit
 
1,
 
there
 
have
 
 been
 
three
 
recent
 
and
 
distinct
 
rallies
 
in
 
the
 
U.S.
 
dollar
 
since
 
the
 
credit
 
crisis
 
 broke
 
in
 
2007
 
(excluding
 
this
 
most
 
recent
 
rally).
 
It
 
can
 
 be
 
argued
 
that
 
each
 
of
 
these
 
three
 
rallies
 
in
 
the
 
U.S.
 
dollar
 
was
 
driven
 
 by
 
‘safe
haven’
 
 buying
 
given
 
the
 
underlying
 
events
 
of
 
each
 
period:
 
 
 July
 
to
 
September
 
2008
Fannie
 
Mae
 
(FNM
NYSE)
 
and
 
Freddie
 
Mac
 
(FRE
NYSE)
 
faced
 
collapse,
 
eventually
 
rescued
 
 by
 
Fed
 
in
 
early
 
September.
 
 
September
 
to
 
November
 
2008
 
 
Lehman
 
 bankruptcy,
 
AIG
 
(AIG
NYSE)
 
credit
 
concerns
 
and
 
 bailout.
 
 
December
 
2008
 
to
 
March
 
2009
 
 
Crisis
 
extends
 
to
 
U.S.
 
automakers
 
(GMAC
 
 bailout).
 
Exhibit
 
1:
 
Recent
 
USD
 
Rallies
 
vs
 
Gold
 
Price
 
7008009001000110012001300 Jan
08 Apr
08 Jul
08 Oct
08 Jan
09 Apr
09 Jul
09 Oct
09 Jan
10
     G    o     l     d     P   r     i   c    e     (     $     /    o   z     )
65707580859095
     D     X     Y     I   n     d    e   x
Gold
 
US$/ozDXY
 
(US$
 
Index)
 
Source:
 
Bloomberg,
 
Raymond
 
 James
 
Ltd.
 
On
 
average,
 
during
 
each
 
of
 
these
 
three
 
USD
 
rallies,
 
we
 
saw
 
(for
 
further
 
detail
 
refer
 
to
 
Exhibit
 
2):
 
 
DXY
 
up
 
13%
 
 
Gold
 
price
 
down
 
9%
 
 
HUI
 
Index
 
down
 
28%
 
 
 
RJ INsight
Page 3of 10
Gold,
 
despite
 
its
 
safe
 
haven
 
status,
 
sold
 
off
 
in
 
two
 
of
 
the
 
three
 
periods,
 
as
 
a
 
flight
 
to
 
liquidity
 
and
 
focus
 
on
 
capital
 
preservation
 
trumped
 
all.
 
At
 
the
 
 beginning
 
of
 
2009
 
however
 
 both
 
the
 
USD
 
strengthened
 
and
 
gold
 
rallied
 
as
 
investor
 
demand
 
spiked
 
on
 
fears
 
of
 
inflation
 
and
 
economic
 
meltdown.
 
We
 
maintain
 
our
 
current
 
view
 
that
 
the
 
‘safe
 
haven’
 
status
 
of
 
the
 
USD
 
will
 
continue
 
to
 
 be
 
eroded
 
in
 
the
 
face
 
of
 
inflationary
 
concerns.
 
Gold,
 
the
 
ultimate
 
safe
 
haven
 
currency
 
(free
 
of
 
credit
 
risk
 
and
 
counterparty
 
risk),
 
should
 
 benefit
 
 by
 
default.
 
Exhibit
 
2:
 
Performance
 
Stats
 
During
 
Recent
 
USD
 
Rallies
 
From To DXY Gold HUI S&P/TSX DJIA
Jul-08 Sep-08 12% -24% -42% -6% 4%Sep-08 Nov-08 16% -11% -40% -35% -27%Dec-08 Mar-09 13% 7% -2% -13% -25%
13% -9% -28% -18% -16%AveragePeriod Performance
Source:
 
Bloomberg,
 
Raymond
 
 James
 
Ltd.
 
In
 
comparison,
 
we
 
note
 
that
 
the
 
current
 
rally
 
in
 
the
 
USD
 
(since
 
December
 
1,
 
2009),
 
driven
 
 by
 
rising
 
economic
 
concerns
 
in
 
Europe,
 
is
 
still
 
 below
 
the
 
three
 
previous
 
rallies
 
as
 
is
 
the
 
sell
 
off
 
in
 
gold
 
equities
 
with
 
the:
 
 
DXY
 
up
 
8%
 
 
Gold
 
price
 
down
 
11%
 
 
HUI
 
Index
 
down
 
22%
 
 
VERSUS
 
U.S.
 
DOLLAR
 
SELL
OFFS
 
We
 
note
 
that
 
post
 
each
 
of
 
the
 
three
 
‘risk
 
aversion’
 
rallies,
 
the
 
USD
 
has
 
weakened
 
materially,
 
resulting,
 
on
 
average,
 
in
 
the
 
following
 
movements:
 
 
DXY
 
down
 
9%
 
 
Gold
 
price
 
up
 
11%
 
 
HUI
 
Index
 
up
 
37%
 

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