For the past 300 years, I’ve been telling people that, contrary to popular opinion, there’s gold in them thar hills.
OK, it just seems like 300 years.
Last time I mentioned the G word in public, my pals fell out of their chairs with hysterical laughter during an episode of beer tasting. I moved to another table at the opposite end of the room.
Such is life for a gold bug squashed by a 20-year gold bear market.
Well, dare I say that even some sage and conservative money managers are starting to whisper the G word, albeit with cautious optimism.
And gold analyst Joe Hamilton of Dundee Securities says his firm is basing its research for 2002 on a $300 US per ounce gold price. Gold bullion currently trades in the $265 range.
Robert Chapman, a seasoned gold watcher and analyst with the International Forecaster, says that if gold cracks $300, “there will be an incredible scramble to cover shorts by massive purchases of gold which could drive the price almost overnight to $400.”
Although giddiness over gold has already begun to build in some circles, it’s highly unlikely that your broker is recommending gold stocks. Traditionally, brokerage houses view gold as politically incorrect because, as a hedge against inflation, it’s an admission that the economy stinks.
The catalyst for a breakout of the price of gold would be a weakening U.S. dollar and Hamilton believes that will happen, although he is non-committal about a time frame.
“I think the U.S. dollar at some point will have to become weaker for a whole bunch of reasons,” says Hamilton, who provides his Three Gold Stars in this column. “But I think primarily it’s because the U.S. manufacturing will need to be kick-started again. It’s very hard for them (manufacturers) to compete on a worldwide basis when their local currency is so strong. With interest rates dropping, that should at some point filter through to a weaker currency.”
Asked for a gold price prediction, Hamilton says: “Jeez, if I knew that I wouldn’t have to work again. I have no idea. I’d just be happy to see $300 to $325 in the short-term. We’re using $300 as our number for next year, but that’s crystal ball stuff. Gold, when it moves, usually moves very quickly in response to some outside economic stimulus.
“People may wake up one day and say: ‘Holy crap, this is not a recession, this is a depression and it’s going to continue for five years.’ And then there’s a knee-jerk reaction and everyone jumps into gold. But I’m a geologist, not an economist. I can’t make forecasts like that.”
Another positive indicator for gold is the strength in recent months of the cream of the crop of gold producers. Historically, rising gold stocks are a precursor of a spike in the gold price.
While still picking the newsprint from my teeth as a result of a prediction that Nortel Networks wouldn’t hit $18, I’m ready to go out on another limb.
I’m calling for the price of gold to break the $300 plateau some time during the next 300 years (while cautioning readers to seek professional investing advice). If I’m wrong, I promise to eat the column . . . again.
PRO'S THREE STARS
Hamilton’s top pick is Meridian Gold (MNG-TSE), whose stock price recently rallied to $13 and has almost doubled in the past year (year range, $7.25-$14.20).
The Toronto-based analyst recommends Meridian as a buy with a 12-month target of $15 “based on anticipated exploration results.”
Meridian, whose El Penon mine in Chile produces the bulk of its output, recently announced second-quarter production of 106,074 ounces of gold at cash costs of $83 US per ounce.
Hamilton also has a buy on Agnico-Eagle Mines (AGE-TSE) and a speculative buy on Gabriel Resources (GBU-TSE).
“For investors who want some exposure to base metals as well, I think Agnico-Eagle is the best pick,” says Hamilton of the company that boasts Canada’s biggest underground gold mine at LaRonde.
Agnico-Eagle gets a $14, 12-month target. Its recent price is $13.05 (year range, $7.30-$14.40).
“Most of their leverage is to gold prices, but there’s some leverage to metals prices. They’ve just announced expansion from 5,000 tonnes a day to 7,000 tonnes a day. That should mean greater earnings and cash flow down the line.”
Gabriel (recent price $3.70, year range $2.35-$4.68) gets a 12-month target of $5.50.
“Gabriel has a very large gold deposit in Romania. Really, it’s world-class and should attract the attention of the major mining companies. We expect that the company will be sold as a take-out bid by the end of the year to a company that will proceed with development of the deposit. It’s about a 12 million-ounce deposit. You would own the stock for the takeover potential and the quick flip on it.”
Hamilton discloses that he personally owns stock in Gabriel.
HOT ALBERTA STOCK: Churchill Corporation
CUQ-TSE $3.45
Up 63 cents (+22.3%) on 121,710 shares (for week ending Aug. 3).
Sometimes, all you really need is an old-fashioned hammer to hit a home run on the stock market. And a few nails. Churchill, an Edmonton-based industrial construction and commercial building company, has taken a home-run trot in the past year with its share price more than doubling as investors scurry back to old-economy companies. Churchill CEO Hank Reid projects his company will generate close to $300 million in revenue this year in a softening economy. Take a bow, Hank.
COLD ALBERTA STOCK: VisuaLabs
VLI-CDNX 20 cents
Down $3.60 (-94.7%) on 722,035 shares (for week ending Aug. 3).
In one of the biggest tank jobs since Bre-X, VisuaLabs stock was dumped like a bad 3-D movie after it was unhalted. The three-dimensional technology that led investors to bid the stock up to $15 is now under scrutiny by the Calgary technology company itself. VisuaLabs has alleged that its chief scientist and CEO, Sheldon Zelitt, used a TV bought at a nearby store to fool shareholders at its recent annual meeting. Zelitt has been fired for alleged “serious misrepresentations" before and during the July 3 meeting.
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Gyle Konotopetz can be reached at: gyle@businessedge.ca
