Gold stocks starting to outshine bullion: Canaccord report

Higher gold and silver prices are finally jump-starting the stock prices of the companies that mine the metals, Canaccord Genuity Capital Markets analysts said in a report this week.

Equities have lagged the rise in precious metals prices over the past decade, but as Canaccord points out in its third-quarter review of the precious metals sector, they’re now catching up – and better.

The S&P/TSX Gold Index has climbed 37% year-to-date in U.S. dollar terms, not far off gold’s 32% rise. However, a breakout began after February. Since then, the S&P/TSX Gold Index has jumped 63% compared with gold’s 34% increase over the same period.

Intermediate and junior producers have led the charge. Their stocks are up 58-60% as investors bet on their growth, Canaccord said in the Oct. 22 report. Meanwhile, senior producers and royalty companies have trailed, with median returns of 39% and 25%, respectively.

Canaccord analysts wrote that higher gains among intermediates and juniors reflect increased investor interest in lower-cap, more leveraged companies. They tend to rise more with gold prices.

This equity rally follows a sharp rise in gold prices. The metal hit a new high of US$2,721 per oz. on Oct. 20, up 32% year-to-date, and has since risen even higher. It averaged US$2,477 per oz. in the three months ended September, the highest quarterly price on record.

Silver has also rallied, climbing 42% this year, with an average third-quarter price of US$29.46 per ounce—its best quarterly performance in over a decade.

“Like its sister metal gold, silver has been attracting renewed attention as a safe-haven asset,” lead analyst Carey MacRury wrote in the report. “Although it continues to exhibit its hallmark volatility, many silver investors believe that a bull market is starting up for the precious metal.”

Rising margins

The record gold prices have boosted miners’ profitability, with Canaccord forecasting gold prices averaging US$2,387 per oz. next year.

The sector’s all-in sustaining cost (AISC) margins increased 13% quarter over quarter, building on a 32% rise from the first quarter. At this level, producers’ AISC margins could rise to US$906 per oz.—up 76% from the US$516 per oz. seen in 2023, according to Canaccord.

Despite strong prices and better margins, the market is still undervaluing gold producers, which remain below historical benchmarks. Senior miners are trading at 0.71 times their net asset value (NAV), below the long-term average of 0.81 and near the low end of their typical valuation range between 0.65 and 1 times NAV, Canaccord said.

The bank’s analysts expect the gold rally to have legs. They raised their long-term gold price forecast by 10% to US$2,963 per ounce. Silver’s forecast also rose by 5% to US$35.28 per ounce.