In a June 22 research note, CIBC reported its equity research analysts lowered their price forecasts on gold and silver but remain bullish on both metals.
As for the gold price, they decreased their forecast to $1,925 per ounce ($1,925/oz) from $2,100 "to reflect the softer performance year to date" but expect it to strengthen this year and peak in 2022, they indicated.
"Our outlook remains bullish as we continue to see pressure on real rates on the back of inflationary pressures, particularly into the back half of 2021, as well as increased safe haven demand," the analysts wrote.
Similarly, the analysts trimmed their silver price projection to $28/oz from $29 but kept their longer term, 2022 price forecast of $32/oz and outlook through 2025. They expect the gold-silver ratio to remain where it is, under 70:1.
"Silver continues to outperform gold, and we expect that trend could continue in the near term," the analysts wrote.
They highlighted that while they decreased their price target of the companies they cover, to reflect their revised metals prices, they still expect the sector to generate attractive returns and robust free cash flow, with producers and royalty companies leading the way.
The analysts expect 2021 free cash flow yields equivalent to or higher than the forecast yield of the S&P TSX or S&P 500, even at spot prices of $1,784 per ounce, they noted. For the sector as a whole, they estimate an 8% free cash flow yield, using a market cap-weighted average. For junior producers, they project 13%, for senior and intermediate producers 7%, for silver producers 5% and for royalty companies 4%.
Despite inflation, they do not expect a repeat of one trend they saw in the last cycle, decreasing margins among the senior miners.
Rather, they wrote, "Many of these same companies have committed to returning capital to shareholders, have been increasing payouts with higher gold prices and can support continued capital return, even with transitory dips in the gold price."
The analysts indicated they currently favor larger cap, more diversified producers given the current environment. They base this on their belief these stocks will be the first to benefit from an influx of new investors merely looking for gold exposure. Then as stock prices move up, a second wave of investors will enter, looking for more value-driven, leveraged stocks.[NLINSERT]
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